Nokia plunges into Q2 loss of €368m
CEO Elop pleads better than expected turnaround progress, but all the key indicators are down for now
Published: 21 July, 2011
No big surprises in Nokia's second quarter, as the Finnish firm plunged into the red, to the tune of €368m ($523m), as it endures the long wait for a revamped product line running Windows Phone 7. The markets welcomed the absence of any further shocks, after Nokia's dire profit warning at the end of May, and shares rose by 6.3% on the results announcement, boosted by a confident outlook from CEO Stephen Elop.
Elop said that, although Nokia had realize in May that the second quarter would be worse than previously thought, the firm had also made "better than expected" progress towards its strategic goals. However, all the key figures were dramatically down. As well as the loss, which reversed the year-ago profit of €227m, sales fell 7% year-on-year to €9.28bn; operating margin was down from 9.5% to 4.5%; the operating loss was €487m; and average selling price (ASP) was down by 3%.
Nokia's downfall has been precipitated by its failure to keep up with Apple and others in the second smartphone generation, one centered on touchscreens and apps. It is pinning its hopes on WP7 to revive its fortunes, and will launch its first device in time for the holiday season, but for now it is suffering though a painful transition period as Symbian becomes a dead end. This is affecting its strongholds in the midmarket and emerging economies, where Symbian has been strong, as well as the classic Apple territory. While smartphone sales were down by one-third, featurephones were down too, and overall, Nokia saw a 20% decline in handsets, by volume and revenue (falling to 88.5m units and €2.55bn). The performance missed analyst estimates of 96m by a long way.
Elop said Nokia was accelerating its plan to cut costs at the handset division, pledging a reduction even greater than the previously announced €1bn in operating expenses by 2013. The growing importance of patents and their royalties was seen in the figures too, with the handset unit boosted by €430m of these payments. That amount should increase now, as Nokia recently won a royalty bearing settlement from Apple after a series of patent lawsuits.
Elop said in his statement: "While our Q2 results were clearly disappointing, we are executing well on the initiatives that are most important to our longer term competitiveness. Some progress is already evident, and thus we are targeting to end this year with more net cash and liquid assets than at the end of Q2 2011. 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."