Nokia averts disaster in transition quarter
Having addressed inventory problems, the firm held smartphone sales steady, to turn in lower than expected loss
Published: 21 October, 2011
Nokia acknowledged "the strong momentum of competing smartphone platforms relative to our higher priced Symbian devices, as well as pricing tactics by certain competitors", but added that it had prevented further erosion of the Symbian base, especially at the low end, which "reflected better demand for our lower priced Symbian smartphones compared to our higher priced Symbian smartphones". Maintaining the legacy base is important for Nokia, not just for short term revenue and cashflow, but to provide a friendly base for upgrades to the new WP7 range.
But if affordable smartphones were holding up relatively well, there was huge margin pressure on a business unaffected by the WP7 transition, the mass market Mobile Phones unit -this was subject to price wars, to featurephone migration to Android, and to rising competition from Chinese suppliers. Revenue from this division fell by 14% year-on-year to €2.9bn even as volumes rose by 8% to 89.8m units. However, the unit did see a sequential recovery, with revenue up 14% and volumes an impressive 25%. This is partly down to build-out in emerging markets, with those featurephone users replacing those lost to Android further up the chain, but the main driver for Nokia itself was its introduction of more dual-SIM devices, a key competitive factor in markets like India.
Nokia Siemens Networks showed some positive signs, with net sales increasing by 16% year-on-year to €3.41bn, though this figure was down 6% sequentially. The annual sales growth was "driven primarily by growth from the acquired Motorola Solutions networks assets". Without those, net sales would have increased by just 3%, with most of that organic increases coming from the Global Services unit. NSN narrowed its operating loss to €114m from €282m a year ago.
Looking forward, Nokia is learning to live with lower margins - operating margins for devices and services were over 10% a year ago but are now down to 4.1%, and forecast to be in the 1% to 5% range in Q4. The firm expects a sequential increase in sales in the current period, but also a rise in costs because of its major product launches.
Elop commented: "Our results in the third quarter indicate that our sales execution and channel inventory situation have improved. From a product standpoint, our overall mobile phones portfolio performed well. Overall I am pleased with Nokia's results this quarter. It is important to emphasize we are on a journey."
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