Finnish phone-maker is overtaken by Samsung and Apple in smartphone sector as sales slide continues
The Finnish phone-maker Nokia crashed to a loss for the second quarter as its smartphone and mobile business collapsed, leaving it in third place in the sector behind Samsung and Apple, and with no clear sign of any improvement in the short term.
Overall the company made a loss of €368m despite receiving a one-off payment of €430m from Apple to settle a long-running patent dispute. Revenues fell overall by 7% to €9.3bn.
The company's mobile revenue, normally the stalwart of its business, fell by 20% year on year to €5.47bn and made a loss of €247m, as the number of phones sold dropped by the same amount, to 88m – both figures not seen since 2006. Its existing Symbian smartphone business, which it has said that it will phase out in favour of phones using Microsoft Windows Phone from later this year, fell by 30% year on year to just 16.7m.
The Navteq mapping and Nokia Siemens Network (NSN) businesses offered no comfort either, both racking up operating losses of €58m and €111m respectively, although sales at NSN were up by 20%.
Stephen Elop, the former Microsoft executive who took over as chief executive last September, said in a statement: "The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011. 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. Most importantly, we are making better-than-expected progress toward our strategic goals."
But Francisco Jeronimo, research manager for European mobile devices at the analysts IDC, warned that Nokia risks missing out on a window of opportunity as more and more people switch over to smartphones from older "featurephones": "I think it will take at least two or three quarters after the launch of Nokia Windows Phone devices before they get positive results. That takes you to March of next year. But consumers are moving to smartphones, and it will be very hard for Nokia to get them if they have just signed up to two-year contracts using an Android, iPhone or other smartphone." Already more than 50% of mobile phone shipments in the US and Europe are smartphones, and 30% of mobile users in the US and 38% in the UK are already using them.
Elop's forecast for the next quarter remained around breakeven – but Elop admitted there was "limited visibility" on it. He said he was "optimistic" about the Windows Phone potential in the long term. "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."
Nokia's shares moved up in early trading by about 4%, to trade at about €5.80, because analysts had expected worse – but the shares have almost halved in value since February, when Elop announced the tieup with Microsoft – which coincidentally will announce its fourth-quarter earnings on Thursday evening.
"It is a glimmer of hope in an overall very gloomy picture," said Angus Campbell, head of sales at Capital Spreads. "The picture for Nokia is difficult – it is competing in an incredible competitive environment and their smartphones are not as popular, against Apple's iphone and Google's Android."
Nokia needs to take quick action to develop new products or it will continue to lose ground to its rivals, said Neil Mawston of London-based Strategy Analytics. "Pretty much everything is heading in the wrong direction," Mawston said. "Nokia has to move with lightning speed to upgrade their portfolio."
The results contrast spectacularly with Apple's from Tuesday, when it said that it had sold more than 20.3m iPhones during the quarter even though there was no new model to spur sales; the iPhone has not been updated since June 2010. Apple's sales from the iPhone alone, totalling $13.3bn (€9.4bn), mean that Apple's mobile phone business generated almost twice the revenue of Nokia's in the same period.
Samsung will release quarterly earnings next week that are expected to show that it took the lead in the smartphone market, and may have beaten Nokia to the title.
Smartphones running Google's free Android operating system now make up the largest share of the top-end devices, with about 36% of the market. Apple's latest sales figures suggest that it has grabbed about 20% of the global smartphone market, while Android is expected to have grown to around 40% of the business.
Nokia dominated the mobile phone business for almost two decades, and for years had the majority section of the valuable smartphone market. But the introduction of the iPhone in 2007, followed by the arrival of Google's Android operating system in 2008, has eroded its share and profits substantially.
Elop could point to some success in having driven Apple to a settlement over a patent dispute settled during the quarter, leading to the one-off payment without which the results would have been even worse. Apple will continue to pay a royalty on some patents belonging to Nokia.
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Source: http://www.guardian.co.uk/technology/2011/jul/21/nokia-reports-loss
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