Nokia's Q2: all lemons, little lemonade

Nokia's Q2: all lemons, little lemonade

Summary: The Finnish mobile giant's billion-dollar loss in the second quarter shows a company reeling from years of poor strategy as it grasps desperately for a chance at a second act.

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TOPICS: Mobile OS
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Nokia's corporate color is blue, but when I look at its second quarter earnings, all I see is red, red, red.

A net loss of $1.74 billion. Sales down by 26 percent year over year. Smartphones sales down 34 percent in the same period. And despite promises to shed non-core assets and unused facilities, cash on hand is down by $730 million. (You can read the rest here.)

When it rains, it pours.

You've got to feel for chief executive Stephen Elop, who in many ways has been tasked with turning an aircraft carrier as fast as a slot car. When I look at the numbers, I see a company finally feeling the extent of the pain derived from years of poor strategic decisions. Now there's even more pain as it attempts to lighten the load, turn a corner and get back in the running.

But there's room for worry: like BlackBerry-maker Research in Motion, there is simply not enough money coming in. Margins have thinned. Highlights are few and far between. The only bright spot, truly, is the fact that Nokia's North American sales and services are up 45 percent year over year -- but at the expense of huge declines on every other continent. (And when you consider that Nokia's been a non-player in the U.S. since the dawn of the age of the smartphone, you wonder just how bright that spot really is.)

When you look at device volumes, the picture doesn't get much better. If it was Nokia's plan to sell its flagship Lumia device cheap enough to undercut the iPhone or top-flight Android devices, it's not working -- every continent save one on which the company operates showed fewer Nokia devices moving through the channel, including smartphone-happy North America.

If you're taking on a corporate transition, this is not how it's supposed to go. Investing in the future means taking a loss with the hope of future gains. But Nokia, across virtually its entire enterprise, is still reeling from assaults on every line of business. The aircraft carrier is still afloat, but nary an engine is driving it. (The company's top highlight for the quarter: development on a new factory to serve the feature phone market in Vietnam.)

Elop and company are working to downsize the company into fighting shape -- some 10,000 positions will be eliminated by 2013 -- but the question is whether they have the bandwidth to simultaneously develop new streams of revenue to push the company forward and fuel its next act. Sales of the Microsoft Windows Phone-powered Lumia smartphone were up, to 4 million for the quarter, but those figures aren't nearly enough to be the company's saving grace. Cuts and reductions will only get you into the shape you needed to be five years prior.

Nokia says that "Q3 will remain difficult," hardly a surprise given the magnitude of the company's problems. The question is whether it's too far behind to ever catch up.

Topic: Mobile OS

Andrew Nusca

About Andrew Nusca

Andrew Nusca is a former writer-editor for ZDNet and contributor to CNET. During his tenure, he was the editor of SmartPlanet, ZDNet's sister site about innovation.

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  • Nokia should take Microsoft to court!

    Should take Microsoft to court!
    Nokia should be taking Microsoft to court now that it is clear that the new windows 8 phone OS will not run on the brand new Nokia phones.

    Who would buy one now!

    Microsoft must have known this was going to be the case and it seems that Nokia were not aware of this issue when they were betting the house on Windows phone OS, so Nokia should either be compensated by Microsoft or the shareholders should pressure the Nokia board to sue.

    Its a disaster for Nokia.
    pjc158
    • What are you talking about?

      So Samsung and HTC and Motorolla should take legal actions on Google because Google release new Android version???

      In software industry it is normal to release new software that support new hardware that make old device obsolete...

      And In the Smartphone industry as the market move really fast it is normal that phone that arrive on the market since 3 to 6 months to be obsolete now ... I don't see any problem with that...

      Note that, the fact that Windows 8 will not be compatible on Windows Phone 7.5 smartphone (in this case Nokia Lumia smartphones) will not prevent these devices to work as well as they run six month ago!!

      And, It was not a secret for anybody that after the Windows Phone 7.5 will come a next version (Windows Phone 8) eventually... And, by knowing that, if you rally want the 8 versinon you should not buy a Nokia Lumia 900 or somthing and rather wait for the Nokia smartphone that run Windows 8!!

      Also, don't be fool, Nokia clearly knew that Windows Phone 8 had to come in a near future when they release the Lumia spartphone series... They already planed Lumia 8 series of smartphones since the begining of the microsoft-Nokia deal...

      Don't underestimate Nokia...
      EricDeBerg
      • You're confused

        Samsung and HTC and Motorola will of course not sue Google for releasing a new version of Android -- if they so choose, they can update any or all of their devices with the new OS. Free of charge, in fact. They may not be strongly compelled, since Android makes it super easy to support older OS versions while still using new features if they're present in hardware. So the OS upgrade may be nice, but it's not critical.

        Similarly, I'll be able to put Windows 8 on my 5 year old laptop (which came with Windows Vista, but is now running Windows 7). And in fact, I could run it on the ten year old PC in my home lab...I'm sure at least the Metro stuff would be right snappy, given that's all for phones and tablets.

        The problem with Windows 7 Phone isn't related to hardware features... and that's hardly the only reason you want an upgrade, though that does seem to be the Microsoft apologist's lone talking point on the matter. The point is the Nokia phones are brand new, on 2-year contracts, and not at all compatible with Windows 8 apps. Estimates are that maybe Nokia will sell 3 million Lumias this year, with W7P. The day that Windows 8 is released, there will be more devices running Windows 8. Even if the intro is a flop. Yes, you can apparently run W7P apps on Windows 8, but it won't make sense for developers to stick to W7P, given the insignificant market. So unlike Android or iOS OS version upgrades, Microsoft is orphaning W7P. That's why users need the upgrade.
        Hazydave
        • I am not confused

          You are confuse... This is not a matter of if the phone maker have the possibility to update or not it, this is a matter of users that want things that never append on the market of smartphone ... And please, don't compare PC with Smartphone market...

          Event if Samsung, HTC and Motorola can upgrade their old smartphone models to the newest Android OS version, they don't do upgrade it... generally. They prefers to sell new smartphones...

          Similarly, You cry for Nokia about the fact that the Lumia series cannot upgrade to Windows Phone 8 but, they don't want to!! They want to release new Nokia Windows Phone 8 series smartphones on the market... They don't just want, they are ready to release Windows Phone 8 on the market...

          Another things is Microsoft will release Windows Phone 7.8 for the old Windows Phone users... so we will all have the same users experiences... almost.

          Nokia smartphone are brand new? No, at the release time of Windows Phone 8, in late October 2012, the Lumia series of smartphones will no be brand new!! Life cycle of smartphones on the market are really short , 3 months and sometime less. This depend on competition...

          The best example is the Lumia 900 that became the super start on the market at its release and two month latter Samsung release the Galaxy S III and this is the new superstar of the smartphone market...

          So Nokia have to release new smartphone at each 3 months with new superstars... Like other companies trying to do... That's it...

          It is common to the users that the phone they get with their 2 or 3 years carrier contract become obsolete 3 month after getting it... It is a little frustrating, I convince, but this is the market rules...

          So please stop crying on Nokia and demonized Microsoft... They only do what all others do in a capitalist economical system... If you don't like this system change it...
          EricDeBerg
          • You are indeed confused.

            Android is still android, be it Jellbean, ICS, or Gingerbread. It's still android.

            iOS is iOS, from version 1, to version 6.

            Windows 7.5 is not Windows 8.

            Have I made it clear, or do you want me to get out the crayons.
            Bozzer
          • but

            honeycomb doesn't run on phones, siri doesn't run on older iPhones, many apps do not run on all versions of android. I just fail to see your argument here. WP 7.8 will look and feel the same as WP 8 and WP8 will run all of the apps of 7.8. Unless you are a developer I bet you won't even be able to tell if your phone is 7.8 or 8.

            If you are talking about the underlying kernel, sure they are different but that is basically just an issue for OEMs and their drivers.
            RyanGadz
      • It was not a secret.

        It wasn't was it not. I guess all those tech journals (this one included) pondering if the 800/700 would be upgraded to windows 8 were all misguided. If only they had come to you, you could have put them straight.
        Bozzer
      • Re; So Samsung and HTC and Motorolla should take legal actions on Google .

        What a load of nonsense !

        Neither of them has been " Elop" 'ed.

        Elop made Nokia a very expensive speech, whre he announced that their biggest earner, Symbian was dead and WP7 was the ONLY smartphone to be made.

        The real apex of the stupidity was to do so half a year BEFORE they had any such phones ready !

        ALL other producers of WP7 phones has OTHER systems too. They do NOT rely on ONE system ONLY !
        That is just plain STUPID.

        The result was that the value of Nokia's shares tokk a severe dive immidiatly, and their shares kept tumbling !
        Before the speech Nokia's shares stood at € 8.40 and now it is down below €1.60 !
        That is more than 80% of the rated value gone !

        The latest dive came when it was announced that the new Lumia 900 would not be able to go on to WP8. thus making a pretty new model obsolete before there was any new model.

        Elop has been killing Nokia and it is becoming doubtful they will recover.
        As the shares went down so did their credit rating and their cash reserve.

        Rating before was exellent and now it is junk !

        No other phone manufacturer has had a CEO do such devastating things to their own company.
        hkommedal
    • Are you really as idiotic as you sound? Nokia knew the existing lumias

      wouldnt run WP8 before they built the first one. And on top of that they knew consumers dont care about that. And they mentioned that. And that lumia sales have increased substantially since that expected news was made public. Have a brain.
      Johnny Vegas
    • Nokia of course knew it also

      Do not think that Nokia was not aware that Win7 phones could not be updated to Win 8. But it is not that much of a disaster. A Nokia Lumina is still a very good phone and at the price a great one. All apps writtten for it will work on a Win8 phone, but it will continue to get updates from Nokia. The new interface for a normal user is a huge plus and makes a great phone even better.
      brickengraver
  • This is a good read on how Elop..

    .. has taken Nokia further down with such big decisions:

    http://communities-dominate.blogs.com/brands/2012/07/the-sun-tzu-of-nokisoftian-microkia-mirror-mirror-on-the-wall-whose-the-baddest-of-them-all-waterloo.html

    Written by an ex-Nokia employee. Long read, 29000+ words, but well worth it.

    All this is not surprising, WP7 is failing to make a mark specially with WP8 having been announced. Only hope Nokia has right now is with WP8, which I think might finally turn their fortune around if done right..
    addicted2088
    • 29000 words...

      I've read it. Sour grapes and too much historical facts that after some time do not make much sense.
      That guy loves to write and has too much time.
      paul2011
    • It's not a good read, it's a cry baby whine. You'd have to be an idiot to

      buy the premise that there was no burning platform before the burning platform memo. Elop looked at the obvious coming market share plumet and had the balls to change course before it was too late. Had he listened to this guy they be right where they are now getting killed and still have nothing but a broken meego pile of crap sitting on their floor. They be 2 years behind on there turn around and like RIM, unlikely to be able to hold on until it happens
      Johnny Vegas
      • Re; the balls to change course before it was too late.

        He certainly made a change of course !

        He devastated 80% of Nokia's share value in less than 18 months !

        I do NOT think the shareholders see that as a change for the better !

        Would YOU like to have your shares downgraded like that ? To get $160,000 left of $840,000.
        hkommedal
  • The decision to put the company's eggs

    All in the WP 7 (WM 7) basket is looking like the worst thing any CEO has ever done. I wonder if Elop will get a bonus for delivering the Patents in record time? Who wants to bet Elop isn't back at his old job, with Microsoft, after collecting a huge bonus for killing Nokia?
    Jumpin Jack Flash
    • It's obvious to most that it was a smarter decision then going with Android

      as an offering.

      Sales show the vast majority of Android devices sold are the low end to free, which are the phones driving Samsung's (and others) sales. High end phone sales are additional sales.

      Since Nokia doesn't do cheap, they wouldn't have moved enough Android phones to matter.
      William Farrel
      • Really William "toddbottom3" Farrel?

        "Sales show the vast majority of Android devices sold are the low end to free, which are the phones driving Samsung's (and others) sales. High end phone sales are additional sales."

        And what are the WP 7 (WM 7.x) phones selling for? If I'm not Mistaken they were initially giving away Lumia 900s. You paid $99, but got a $100 credit for it. Maybe it was because the phone wasn't ready for "Prime Time", or maybe it is a cheaply made disposable phone.
        With the largest portion of the Lumia phones being held together with "double-sided tape" it does not exactly scream Build quality. But the Indian at Foxconn, the people that Make Lumia phones, are probably still working on the internal designs, so we won't judge them on it till the New Window RT phones come out.


        "Since Nokia doesn't do cheap, they wouldn't have moved enough Android phones to matter."

        But since the Lumia phones are much "cheaper" (cheaply constructed, using cheap parts), how do you qualify that statement?
        Jumpin Jack Flash
      • Re; it was a smarter decision then going with Android.

        Absolute NONSENSE !

        The only sensible thing was and is to have MORE that one system !
        Just like most others.

        Samsung makes both ! They also make Bada.
        Samsum is now the biggest producer of smartphones.

        Go figure !

        All eggs in one basket is NOT a clever idea.

        Ditching the existing basket of eggs long before the new ones were avaliable is either super stupid or malicious !
        hkommedal
    • Thats just silly. It's still at least 3 years too early to tell which way

      its going to go with Nokia/WP.
      Johnny Vegas
      • 3 years too early?

        Maybe for WP. Doubtful Nokia can last another 3 years unless something changes big time.

        And as for WP, it really needs another 3 years? As in, 'Windows Phone 8 has had disappointing sales, but Windows Phone 9 will be revolutionary'?

        I think there's been enough time to conclude that the Metro interface appeals to some people, but it appears to be a minority taste. It's not likely to spur WP8 sales.

        And, yes, Android phones are mostly cheap. So what? If Google can figure out how to make money with a 'give 'em the razor (handset), sell 'em the blades (apps)' model, and its OEMs are OK with that, fine. Apple is fine with the high end and high margins per handset. Only MSFT and its OEMs suffer in the middle.

        High-end smart phones may sell more on prestige than features. Deserved or not, Apple has cachet, it's iPhone brand appeals to many with too much disposable income. OTOH, Windows is a tired brand, and it just may carry negative prestige. I realize MSFT believes there's lots of value in the Windows brand, and that may be so on PCs, but it doesn't seem to be the case on phones. I believe it's going to take WP8 to drive that point home to the MSFT board.
        hrlngrv