Nokia makes $1.4bn loss despite strong start in WP7
Finnish vendor does better than expected in smartphones, boosting shares, but there are causes for concern in the volume market
Published: 26 January, 2012
READ MORE: Financial | Nokia | Handset | Windows Phone
Nokia's shares leapt as it reported higher than expected smartphone sales in the fourth quarter of 2011, a year into its alliance with Microsoft but only a few weeks after its first WP7 range went on sale in selected territories. This raised hopes that, once Nokia delivers a broader selection of devices in its Lumia range, and ships in the US, it will begin the smartphone comeback it so badly needs to arrest decline in margins and market share.
Nokia, which lost its smartphone market lead last year to both Samsung and Apple, still shifts volumes which are dwarfed by its major rivals. Apple sold 37m iPhones in the quarter, while Nokia reported 19.6m smartphone sales, and that number still includes the legacy Symbian models, which the Finnish vendor will continue to support and enhance for at least another three years. But its performance was ahead of expectations of 18.5m smartphones sold.
Nokia reported a net loss of €1.07bn ($1.4bn), or 29 cents a share, but this was because of a €1.1bn impairment loss on its location unit. It compared with a year-ago profit of €745m. Sales fell by 21% to €10bn. The main factor here was a drop in sales of low end handsets, and the value of those devices.
In Q411, overall handset sales dropped by 29% year-on-year, a figure which split between 19.6m smartphones and 93.9m featurephones for a total of 113.5m. Nokia also saw prices for its handsets fall, with an ASP of €53, down from €69 a year ago. That helped depress profit margins, which were just 3.4% on handsets, compared to 12.7% a year ago and 12.1% even as recently as Q311. These figures reflect the necessity of competing aggressively on price in order to keep the Symbian and S40 cushions alive during the transition to WP7, as Nokia seeks to maintain its high profile in markets like China and India, which will be vital for future smartphone growth. They also reflect the increased cost of developing and marketing a brand new range, after a couple of years of Symbian-based stagnation.
However, the fall-off in low end products is not a positive for Nokia. While competitors like Motorola and Sony Ericsson have deliberately moved away from the low margin featurephone space to focus on the high end, and so have expected a fall in volumes and overall revenues, Nokia has insisted that low end devices, where it retains huge scale and brand recognition, are still a key part of its strategy. It made this clear when it unveiled its new Asha dual-SIM featurephones at the same big event as the first Lumias, and this week it said it had sold the 1.5 billionth model in its low end Series 40 platform, an Asha 303 in Brazil. The first S40 phone was the Nokia 7110, launched in 1999, and there are now about 675m active users of the system, with the vendor claiming to sell about 12 such handsets a second.
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