China at heart of Nokia's miserable first quarter
Devices business makes loss of €929m as sales in China and Europe nosedive, but Elop won't abandon featurephones
Published: 19 April, 2012
No surprise in Nokia's first quarter results, given its profit warning of last week, and further job losses loom as the Finnish firm pledge "plans to accelerate and substantially deepen devices and services cost savings".
On a group level, the company reported a loss of €929m, reversing a profit of €344m in the year-ago quarter, while sales were down 29% year-on-year to €7.4bn. Operating loss was €1.3bn, compared with a Q1 2011 profit of €439m. Sales in the largest business unit, Devices & Services, fell by 40% to €4.2bn, with weakness in both its main segments - Smart Devices (down 52% to €1.7bn) and Mobile Phones (down 32% to €2.3bn). Operating loss for this unit was €219m, compared with a year-ago profit of €729m. Shipments across all device categories fell by 24% year-on-year to 82.7m units, with smart products down 51% to 11.9m and featurephones down 16% to 70.8m.
CEO Stephen Elop announced the miserable results, while insisting that the firm had a "clear sense of urgency to move our strategy forward even faster". But he squashed talk that Nokia would consider moving away from the featurephone business, traditionally a key strength, but under pressure from Chinese rivals, and from the decline of Symbian. Nokia will not have really low cost WP7 devices for its emerging economy strongholds until next year, leaving the Symbian and Series 40 bases open to Android.
That has led some investors to call for the vendor to become a smartphone-only provider, a transition already pursued by Motorola and Sony. But Elop said he had two parallel aims, to boost uptake of Lumia smartphones, and to bolster featurephone sales. He conceded that "the lower price tiers of our industry are undergoing a structural change, and traditional featurephones are challenged by full touch devices" but pledged new investment in addressing these changes, and new low end models to launch during the current quarter.
Elop admitted sales results for Lumia have been "mixed". The high end models, the 800 and the new LTE-enabled 900 (the spearhead for the attack on the US) have generally been strongly reviewed but the 900's glitzy launch at AT&T was marred by technical hitches. And the battle against the iPhone, and Android bighitters like the Samsung Galaxy SII and new HTC One range, will be a tough one. Nokia and Microsoft hope to pose as a more carrier friendly alternative than iOS or Android, but some European cellcos have criticized Lumia for being overpriced.
Ironically, US operators have been more enthusiastic about the range than Nokia's more traditional European partners, perhaps because of the influence of Microsoft. Elop said the US had exceeded expectations in the early days of AT&T and T-Mobile offerings, while "establishing momentum in certain markets including the UK has been more challenging".
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