Nokia drops into the red as smartphone sales fall

The Finnish handset maker plummets to a loss in the second quarter as plunging smartphone sales reflect a struggle to keep up with iPhone and Android
Written by Ben Woods, Contributor

Nokia's earnings slumped to a loss in the second quarter, as the handset maker struggled to keep hold of market share for its smartphones and mobile devices.

Nokia E6

Nokia's earnings slumped in the second quarter of 2011, despite the release of new smartphones such as the E6. Photo credit: Nokia

On Thursday, the Finnish handset maker reported quarterly net sales of €9.27bn (£8.17bn), down from just over €10bn during the same period in 2010. The falling sales of feature and smartphones resulted in an operating loss of €487m, down from a profit of €295m, and a net loss of €368m, compared with a net profit of €227m the previous year.

"The challenges we are facing during our strategic transformation manifested in a greater-than-expected way in Q2 2011," Stephen Elop, chief executive of Nokia, said in a statement. "However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business."

Nokia has been battered by competition from Samsung and Apple. Apple on Tuesday reported record quarterly earnings, powered in part by increased sales of its iPhone smartphones. In the quarter, Nokia shipped the E6, X7 and other smartphones based on the Symbian Anna operating system. However, a change in strategy this year saw Nokia adopt Windows Phone as its smartphone platform, and the company is betting on the Microsoft mobile OS to get its mobile business back on course.

The company said takings in its Navteq maps and navigation technology group stayed relatively flat during the second quarter. It made €245m in sales, compared with €252m the previous year.

Mobile devices

Nokia's mobile device business performed worst, with a 20-percent decline in the number of units sold. Smartphone sales showed the steepest decline, dropping from €3.5bn to €2.4bn for a fall of 32 percent year-on-year. The main hit came in during the second quarter itself: the number of handsets of all types sold was 88.5 million, compared with 108 million in the first quarter and 111 million in the second quarter in 2010.

Nokia is bleeding in all fronts. On the smartphone segment its portfolio is not attractive in terms of user experience, ecosystem and even price.
– Francisco Jeronimo, IDC

"On the smartphone segment Nokia's unit market share is estimated to be down to 16 percent in 2Q11 from 37 percent in 1Q10. Therefore Nokia lost the leadership to Apple in the segment for the first time," IDC mobile analyst Francisco Jeronimo said. "In Western Europe, one of the most important regions to Nokia, IDC estimates Nokia's market share to be 24 percent in the quarter down from 37 percent in 1Q10."

Jeronimo argued that Nokia's lack of foresight and inability to rapidly respond to threats from competitors led to a rapid decline in market share in smartphones and feature phones.

"Nokia is bleeding in all fronts. On the smartphone segment its portfolio is not attractive in terms of user experience, ecosystem and even price," Jeronimo said. "Since the company started struggling in 2009, a price differentiation strategy was pursued to keep volumes high, but even this is not working anymore. Consumers can already find better Android devices at lower prices than Nokia smart devices."

He also noted that rumours of a lower price-point iPhone launching in September only add to the challenge facing Nokia.

Enter Windows Phone

Despite the gloomy quarterly results, Nokia hopes that the introduction of its first Windows Phone handsets will help buoy smartphone sales.

"Those who already have viewed our early Windows Phone work are very optimistic about the devices Nokia will bring to market and about the long-term opportunities. Step by step, beginning this year, we plan to have a sequence of concentrated product launches in specific countries, systematically increasing the number of countries and launch partners," Elop said.

Jeronimo believes the Windows Phone OS could help the Finnish company to differentiate its products from competitors.

"The new platform will play an important role in Nokia's results next year, and there are strong signs that it can reverse the current situation," he said. "Microsoft got the basics right, the Windows Phone user experience. [Microsoft] managed to create an experience that is different, attractive and based on a user interface that is easy to use compared to the iPhone or any Android device."

As a caveat, Jeronimo noted that the Windows Phone platform lacks the maturity of iOS and Android, and would benefit from a stronger developer ecosystem and a range of devices at different price points.

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