Nokia feels the smartphone heat

Nokia feels the smartphone heat

Summary: Nokia's first quarter results disappointed across the board as the company cut its 2010 outlook, missed estimates and said it was facing tough competition at the high-end of its phone lineup.

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Nokia's first quarter results disappointed across the board as the company cut its 2010 outlook, missed estimates and said it was facing tough competition at the high-end of its phone lineup.

Nokia reported revenue of euro 9.52 billion, up 3 percent from a year ago, but short of analyst expectations of euro 9.8 billion. Earnings of 0.14 euro per share also fell short of expectations of 0.15 euro per share.

Meanwhile, the company's outlook was short of expectations. Nokia still sees mobile device growth to be up 10 percent globally, but its market share will be flat. Operating margins of 9 percent to 12 percent in the second quarter will also miss targets.

What's the problem? In a statement, Nokia CEO Olli-Pekka Kallasvuo said:

We continue to face tough competition with respect to the high end of our mobile device portfolio, as well as challenging market conditions on the infrastructure side.

Kallasvuo said that Nokia is making smartphone progress with shipments up more than 50 percent from a year ago. Indeed, Nokia said converged mobile devices---smartphones---delivered revenue of euro 3.33 billion, up 28 percent from euro 2.6 billion. By units, Nokia shipped 21.5 million smartphone devices in the first quarter, up 57 percent from a year ago.

But here's the problem: Companies like Apple and Research in Motion are touting big gains in international sales, notably China. Nokia is dominant in most regions, but the competition will increase. Apple and RIM won't kill Nokia, but they will certainly make it tough to garner high profit margins.

Also: iPhone growth magnifies global smartphone potential -   Apple earnings: A blowout quarter; iPhone and Mac sales jump -   RIM’s Balsillie on Blackberry’s future: What? Me Worry?

In addition, Nokia's Symbian 3 updated devices are on tap in the second half. Symbian 4 may not show up at all in 2010.

Consider where Nokia is powerful:

And now note the plunge in Nokia's average selling prices for smartphones.

Simply put, Nokia is already feeling the smartphone squeeze a bit. The big question is what Nokia can cook up to fend off the invasion of the smartphones abroad.

Topics: Smartphones, Hardware, Mobility, Nokia, Wi-Fi

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8 comments
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  • Nokia makes great hardware

    Its QWERTY smartphones like the E71 and E72 blow anything Blackberry offers out of the water. However, its touchscreen phones don't seem to be getting as much traction. Additionally, its OS is showing its age, and it has virtually no carrier support in the U.S. for its smartphones and is seen largely as a budget dumbphone maker.

    (Nokia has the E71x with AT&T, but it's so bloated up with AT&T crap that most users probably miss the fact that they have a great phone on their hands. BTW, most of the bloatware is removable, but the average user wouldn't know how tackle that.)
    NameRedacted
  • Analysts.... *sigh*

    The same bunch who all underestimated Nokia's Q4 2009 performance now overestimate Nokia's Q1 2010 performance. This, of course, on the back of their absolute butchering of Apple's estimates. Forgive me if I don't take current stock price, etc too seriously here.

    It's good that Nokia recognise that they don't have anything to compete with the iPhone and the new Android handsets at the high end. That's just a fact. Of course, that will certainly change and I'd rather they delayed things than issue deeply unsatisfactory products like the N97.

    That said, according to the Symbian Foundation roadmap that delay looks to be weeks rather than months. Unfortunately Kallasuvo didn't make that clear in the call.

    Now let's look at the actual results: every year on year indicator is up with the exception of North American market share which is, frankly, non existent to begin with. This represents good growth in the markets particularly when you consider the increase in Greater China where Apple made considerable strides with the iPhone.

    What's even more impressive is that smartphone sales increased to 21.5 million, greater even than the Xmas quarter. Thsi shows the plan to transition dumbphone users to smartphones is working.

    For me this is positive - Nokia can't compete at the high end just now but what they can do - and what they are doing by any measure - is dominate the low to middle tier of the market. This is their bread and butter after all.

    The high end comes and goes as Motorola and Nokia will tell you and no-one holds onto it forever. Motorola made the mistake of putting all their eggs in one basket, Nokia haven't. What will be interesting is how the high end evolves and what happens to those players who don't have a fallback position to the low and mid tier - Android does, Apple do not.

    Time will tell. Bottom line is this is a good set of results.
    Sleeper Service
    • bottom line

      the bottom line is their margins are shrinking. their smartphone asp is
      much lower than their competitors' (in fact they count some into the
      converged phones segment that are barely feature phones to exaggerate
      a bit). and do you really have any fate in nokia delivering high end
      devices that can compete with apple's and htc's future offerings?
      banned from zdnet again and again
      • Their bottom line went up year on year.

        EPS was 0.10 Euro cents this time last year, now it's 0.14. Operating profits in the handset division are up 25% to Euro 804 million ($1.07 billion) form Euro 642 million ($0.85 billion).

        Total phone sales are up as are smartphones - and every Nokia smartphone is a smartphone by the accepted definition which is why Gartner, IDC and Canalsys count them as such - and whilst ASP is down the business remains highly profitable. No razor thin margins here.

        As for high end devices, yes - I do believe Nokia can do this. They have the scale and the R&D budget to do it. I'd rather they took their time though than rush things as they clearly don't need to.

        As Kallasuvo says:

        "We will not ship the product before the quality meets the demand of the end user. It is [a delay] painful, but it is the right thing to do and is in everybody's interest."
        Sleeper Service
        • but margins decline

          "The company warned that it expects operating margins in its
          devices and services business to be between 9% to 12% in the
          second quarter of 2010, compared with 12.1% in the first
          quarter and 15.4% in the last quarter of 2009."

          that's is a whooping 35% reduced margins in just two quarters.
          no wonder the stock price is battered. sorry to piss on the
          parade, but this trend is clearly not nokia's friend.

          and i highly doubt that they will be able to compete with the 4g
          iphone. they have not come up with an answer to the iphone (a
          "niche product" as Nokia CEO Olli-Pekka Kallasvuo said in april
          2008) in more than 3 years. what makes you confident that they
          ever will? that they want to, that they plan to? didn't they just
          postpone symbian 3 and 4 devices?

          hope dies last, obviously.
          banned from zdnet again and again
          • Sure...

            ...since Nokia aren't releasing any high end smart phones in Q2 2010 you would expect profit margins to be down. That shouldn't be a surprise. Of course when they do profit margins will be up again. Simples.

            As for not being able to compete with the iPhone 4G that's a pretty bold statement considering the 4G's enhancements over the 3GS are... er... stuff that's been on Symbian for the last two to five years.

            Time will tell - if the delay means a better product I'm OK with that.
            Sleeper Service
  • deleted

    .
    banned from zdnet again and again
  • RE: Nokia feels the smartphone heat

    the bottom line is their margins are shrinking. their smartphone asp is
    much lower than their competitors' (in fact they count some into the
    converged phones segment that are barely feature phones to exaggerate
    a bit). and do you really have any fate in nokia delivering high end
    devices that can compete with apple's and htc's future offerings? <a href="http://www.fasterindexing.com">Free Backlink</a>
    dejan001