Published: 27 January, 2011
It was like old times for Nokia and Motorola, in a head-to-head on their results reports. Once the only handset makers that really mattered, the old enemies have recently been engaged in a common fight against new upstarts with stronger software offerings. The two firms announced their results almost simultaneously, and there were some interesting similarities - growth in smartphones, pressure from Apple, a difficult Q1 ahead, and a frustrating wait for the next wave of high end devices.
Nokia's results showed some familiar patterns. It increased smartphone sales (up 7% in the quarter) but not market share, highlighting its struggle to defend its lead from Apple and Android. Against more traditional rivals in the cellphone arena as a whole, it took share from Sony Ericsson and LG, but saw some fallback in its native Europe, largely, it seems, to Samsung. Chinese growth of 2% was lackluster and there are signs of Nokia's emerging markets stronghold coming under siege from low cost suppliers, though its market share remains huge (about 75% in India). Featurephone shipments fell by 5% year-on-year.
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. He has scarcely appeared in public since taking over, but is expected to outline a comprehensive strategic review at Nokia's investor day on February 11 in London.
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. For the full year, Nokia saw smartphone unit sales rise by 13% but share fall from 34% to 32%.
Elop pointed to a "solid performance", particularly in cash generation, in the quarter but said in his statement: "Yet, Nokia faces some significant challenges in our competitiveness and our execution. In short, the industry changed, and now it's time for Nokia to change faster." One of the changes must be to reduce reliance on the essentially midrange Symbian and accelerate the much anticipated MeeGo devices - or opt for another OS altogether.
"They're predicting a fairly tough first quarter, certainly much tougher than the markets were hoping for," said Andy Perkins, an analyst with Societe Generale.
Also warning of a difficult Q1 was the new Motorola Mobility, announcing its first results as a separate company. Like Nokia, it reported solid enough figures for Q4, but not enough to inspire confidence in its ability to fend off Apple and Samsung, which many analysts expect to be the only vendors gaining share in Q4. And, as previously warned by CEO Sanjay Jha, it expects to fall back into the red in the current Q110, largely because of its largest customer, Verizon Wireless, adding the iPhone to its catalog.
Later in the year, Motorola will have a strong chance to dilute the iPhone effect when it launches its first LTE handsets, a point at which Verizon's enthusiasm for the Apple handset may well wane as it pushes customers towards its shiny new network. Motorola will then be pitching its Bionic phone for the carrier's favors, and marketing dollars, against 4G devices from LG, HTC and Samsung, though overall, it clearly needs to reduce its dependence on a single cellco, however influential.
For Q410, the company reported earnings of $80m, or 27 cents a share, on revenue of $3.4bn, up 21% year-on-year. Non-GAAP earnings were $108m, or 37 cents a share. For full year 2010, the company reported a loss of 29 cents per share on revenue of $11.5bn, improving 2009's loss of $4.56 a share.
The new firm projected a first quarter loss, with a huge range of $26m to $62m, or 9 cents a share to 21 cents a share. Operating results will be roughly break-even, which was in line with estimates.
Mobile device revenue in the fourth quarter was $2.4bn, up 33% year-on-year, while operating earnings for devices were $72m. The company shipped 4.9m smartphones in the quarter and 13.7m in the full year, making the high end products more than one-third of the sales total. Motorola is gradually refocusing all its efforts on smartphones, and the progress is clear, with the Q4 figure edging towards 50% of total shipments.
But while the shift towards high end devices is logical, Motorola's smartphone sales were not robust enough to indicate that the firm can thrive on those alone. Jha did not a "little slowdown" in sales during the vital holiday buying quarter, which he blamed on "anticipation of some devices coming to Verizon".
But Motorola shipped only 4.9m smartphones in the quarter, below market expectations and well below all its main rivals, apart from the lagging LG (Samsung does not report until tomorrow but has already shifted 10m Galaxy S and about 3m Wave models in about six months). Motorola is faced with increasing smartphone share in a segment where Samsung and even LG are playing serious for the first time; Nokia is struggling but has a huge cash mountain to throw at the problem; and where its natural rivals outperformed it even with similar product mixes (HTC sold 9.1m Android and Windows devices in the quarter, Sony Ericsson 9m Xperia Android smartphones). Apple, of course, doubled its iPhone sales in the quarter to reach 16.2m.
Jha said that Motorola's Bravo and Defy models were "solid but slightly below our expectations". He added: "I'm not yet convinced that Verizon will not continue to push forward with Droid as a franchise" (something that hadn't previously occurred to many observers).
Motorola Mobility also includes the set-top box and home networking unit, which reported a 1% rise in revenue to $1bn and $54m in operating earnings.