Nokia Pays The Price As Handset Sales Slump

Nokia has just posted a truly dire set of financial results that revealed a collapse in its handset sales, leaving the Finnish handset giant languishing in the smartphone sector behind Apple.

For the second quarter Nokia made a net loss of 368m euros (£324m), compared to a net profit of 227m euros (£200m) in the same quarter a year ago.

There was equally bad news on the revenue side, after net sales fell 7 percent to 9.27bn euros (£8.2bn), down from 10bn euros (£8.8bn) this time last year.

Poor Performance

The scale of Nokia’s poor financial performance is self evident when one takes into account that even a one-off payment of 430m euros (£379m) from Apple to settle a long-running patent dispute, could not help Nokia from posting the 368m euro loss.

The company’s financial report breaks the results out by division, revealing the extent of the slump in Nokia’s mobile division, which has always been the company’s star performer.

Nokia’s Devices and Services division reported an operating loss of 247m euros (£217m) compared to a profit of 643m euros (£566m) in the year-ago quarter. Sales fell a staggering 20 percent to 5.46bn euros (£4.8bn) compared to 6.79bn euros (£6.0bn).

These shocking figures can be explained because the number of Nokia phones sold in the second quarter fell to just 88.5 million, which on the surface sounds impressive.

However Nokia sold 111 million in the same quarter a year ago. And in the first quarter of this year, it sold 108.5 million.

Even worse, Nokia has slumped in smartphones, a sector it once dominated completely. In the second quarter, Nokia sold 16.7 million smartphones, compared to Apple, which recently boasted that it had sold 20.3 million iPhones in the same period.

Meanwhile, Nokia’s Navteq mapping and Nokia Siemens Network (NSN) divisions both also reported operating losses.

Challenging Times

“The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011,” admitted CEO Stephen Elop. “However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business. Most importantly, we are making better-than expected progress toward our strategic goals.”

“Thus, while our Q2 results were clearly disappointing, we are executing well on the initiatives that are most important to our longer term competitiveness,” he added. “We firmly believe that our deliberate and unwavering commitment to making the changes necessary at Nokia is the right way to deal with the disruptive forces in our industry and drive value creation for our shareholders.”

Windows Phone 7

But Elop did offer a small crumb of comfort to concerned investors by providing an upbeat outlook going forward, saying that he expected Nokia’s struggling mobile handset business to remain profitable in the third quarter. But Elop also admitted there was “limited visibility” going forward.

The problem for Nokia is that it is now paying the price for its decision in February to ditch Symbian from its smartphone portfolio and opt instead for Windows Phone 7. The problem is that Nokia took too long to make the switch. Many Nokia customers had warned that their patience with Nokia was fast running out in the face of better alternatives from the likes of Apple and Android.

And Nokia’s suffering is likely to continue, because the first Windows Phone 7 handsets are not expected to ship until the fourth quarter of this year. Multiple launches are slated for 2012, but by that time many Nokia customers will have jumped ship and migrated across to the Apple or Android camp.

This point was flagged by some in the analyst community.

Francisco Jeronimo, research manager for European mobile devices at the analysts IDC, for example was quoted in the Guardian newspaper as warning that Nokia risks missing out on a window of opportunity as more and more people switch over to smartphones from older “featurephones”.

“I think it will take at least two or three quarters after the launch of Nokia Windows Phone devices before they get positive results. That takes you to March of next year,” Jeronimo was quoted as saying. “But consumers are moving to smartphones, and it will be very hard for Nokia to get them if they have just signed up to two-year contracts using an Android, iPhone or other smartphone.”