Huge pressure on Nokia, as its lackluster Q4 contrasts with Samsung’s progress

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Huge pressure on Nokia, as its lackluster Q4 contrasts with Samsung’s progress

Few CEOs would want to be in the shoes of Nokia’s chief Stephen Elop right now

By CAROLINE GABRIEL

Published: 2 February, 2011

Few CEOs would want to be in the shoes of Nokia’s chief Stephen Elop right now. After lackluster financial results and a downgrading by influential debt rating agency Standard & Poor, all eyes are on his performance at next week’s strategy day in London on Friday. Here, the so-far reclusive Elop will have to come up with a roadmap that convinces investors and partners that Nokia can stem market share decline in its core handset business, and also achieve its goal of becoming a major player in mobile web services, and new device form factors closely tied to content and the cloud.

Elop may opt to adopt a new software platform, such as Windows Phone 7 or even Android (see separate item), or just to enhance the existing strategy - based on web services, MeeGo and multiplatform development – and articulate it convincingly at last. But he has a tough challenge, as the quarterly results of the largest phonemakers indicated.

In particular, Samsung excelled in mobile devices and now threatens Nokia on all fronts – even outrunning the Finn in its native Europe in terms of handset shipments, while making a more effective splash with its smartphones. Motorola was less impressive, but that is little comfort to Nokia these days, when it hardly overlaps with its old rival any more, except in China – Motorola is heavily focused on the US, Nokia scarcely figures there. And then there was cause for concern as ZTE entered the handset top four, indicating further pressure on Nokia’s strongholds in emerging markets and midrange handsets.

Nokia’s results showed some familiar patterns. It increased smartphone shipments but not market share, highlighting its struggle to defend its lead from Apple and Android. However, against more traditional rivals in the cellphone arena as a whole, it saw strong sales in some emerging economies and something of a European rebound, as it took share from Sony Ericsson and LG.

Net income for the fourth quarter was €745m, down 21% year-on-year and the third consecutive period of reduced profit. Earnings per share were down 31% to two eurocents while sales were up 6% to €12.7bn. These figures were better than admittedly pessimistic analysts had expected, but Nokia’s shares still dropped by about 5.5% on the announcement, because of two key concerns – the slow smartphone progress, despite the launch of the new Symbian platform and the flagship N8 during the quarter; and a weak Q1 outlook, especially in terms of operating margins, which Nokia expects to be between 7% and 10% in Q1, compared to 11.3% in Q410 and 15.4% in Q409.

New CEO Stephen Elop admitted there were “significant challenges” ahead. Smartphone share, by Nokia’s own calculations, was 31% in Q4, compared to 40% a year earlier, as Symbian’s entrenched base was eroded by Android and iPhone, and to some extent a broader reach for BlackBerry devices. In a handset space where Nokia estimated that total unit sales had risen by 13% in 2010, compared to 2009, its own share was down from 34% to 32% with Greater China the only region of solid growth in share.

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