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Nokia Pins Hopes On Lumia

Posted on Monday, Feb 13th 2012

In April 2011, Nokia (NYSE:NOK) entered into an agreement with Microsoft to adopt the Microsoft Windows Phone platform. They released their Lumia range of phones, their first phones based on the Windows operating system, in November 2011. In their recent financial results they reported sales of more than one million Lumia phones, exceeding analyst estimates. Let’s take a closer look.


Nokia’s Financials
Nokia recently reported fourth quarter revenue of €10 billion ($13.25 billion), down 21% y-o-y but up 11% q-o-q. Operating loss was €954 million ($1.26 billion) or €0.29 per share compared to operating profit of €884 million or €0.20 per share last year and operating loss of €71 million or €0.02 per share in the previous quarter. The company ended the quarter with liquidity of €10.9 billion ($14.45 billion) and net cash balance of €5.6 billion ($7.42 billion).

For the full year, revenue was €38.7 billion ($51.3 billion), down 9%. Operating loss was €1.07 billion ($1.41 billion) or €0.31 per share compared to operating profit of €2.07 billion or €0.50 per share last year.

During the fourth quarter, Devices & Services net sales decreased 29% y-o-y but increased 11% q-o-q to €6 billion ($7.95 billion). Shipments fell 8% y-o-y but increased 6% q-o-q to 113.5 million. Shipments in North America dropped by a massive 81%, followed by a 33% decline in Greater China and a 24% decline in Europe. Shipments increased 17% in the Middle East and Africa, 11% in Asia Pacific, and 2% in Latin America. 

During the fourth quarter, total mobile phone shipments were down 1% y-o-y and up 5% q-o-q. Smart device shipments were down 31% y-o-y and up 17% q-o-q to 19.6 million. Nokia said the y-o-y decline in smart device shipments continued to be impacted by the strong momentum of competing smartphone platforms relative to Symbian. The sequential increase was, however, helped by the sales of N9 as well as Nokia Lumia 800 and 710 in select markets.

For the first quarter 2012, Nokia expects their non-IFRS Devices & Services operating margin to be around breakeven, ranging either above or below that point by approximately 2 percentage points. They continue to aim to cut Devices & Services non-IFRS operating expenses by more than €1 billion for the full year 2013, compared to the re-forecasted full year 2010 Devices & Services non-IFRS operating expenses of €5.35 billion. The stock is trading around $4.96 with a market cap of $18.57 billion.

Chart forNokia Corporation (NOK)

The Windows Strategy
The transition from Symbian to Microsoft Windows is taking a financial toll on Nokia as operators abandon Symbian models or demand price cuts for them. To deal with these losses, Nokia plans to cut 4,000 jobs or 7% of its workforce at three factories in Hungary, Finland, and Mexico and shift production to Asia to be closer to their component suppliers.

Nokia had expected to sell close to 150 million Symbian devices in the transition to the Microsoft Windows platform. However, the company now feels that because of changing market conditions, they will sell fewer Symbian devices than anticipated. To maximize the value of the Symbian asset, the company said they will continue shipping Symbian devices in specific regions and distribution channels and provide software support to Symbian customers through 2016.

Nokia is also looking to focus on their important re-entry into the North American market. Earlier this month, T-Mobile started selling the low-cost Nokia Lumia 710 as a lead device. Walmart was reportedly offering the device free with a T-Mobile connection. E.D. Kain on Forbes says the Walmart offer should give the phone manufacturer a boost.

Nokia also announced the high-end Nokia Lumia 900 with AT&T, which is expected to hit stores in March. The Nokia Lumia 900 is the company’s third Lumia device and their first long-term evolution (LTE) device designed specifically for the North American market, and AT&T is positioning the Lumia 900 as a lead LTE device. The phone has received positive reviews, and many believe Lumia to be a direct challenge to the iPhone and high-end Samsung phones. It features a 4.3-inch, AMOLED Clear Black display, the largest screen on a Lumia device so far, a 1.4-GHz processor, and a 1830 mAh battery.

Nokia seems to be executing on their Windows strategy well, and the sales of one million Lumia phones are encouraging for launch in the North American market, the pulse of the smartphone industry. Nokia has over the past few years lost out on the momentum of the convergence trend because of their lack of focus on this market. For a long time, they sold their phones directly to consumers without any relationship with carriers. This strategy worked for them outside the U.S. but not in the carrier-dominated U.S. market. The free Walmart offer shows how focused they have now become. I hope the Lumia 900 will help the company regain their lost glory.

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One/two products/year – not enough.

Nokia should learn from the mistakes of other companies. Microsoft's developer community is fragmented with Windows , WinCE.net , windows mobile , PPC and others if any. Making one/two products /year on Windows is not enough. Records indicate that probably very few Microsoft powered devices have crossed 1M in sales , that too mostly by HTC. It took more than a year to release two Microsoft devices from Nokia. If Nokia has to be successful in Microsoft strategy following things are essential.

# If this is a long term strategy , buy 40% share of Windows mobile and have a say in its roadmap. Without this Nokia will not know if it wants Microsoft to succeed with Windows mobile or not and Nokia cannot contribute directly to its roadmap features.If Microsoft comes back strongly in the market , it might start dictating terms to Nokia and Nokia will not have any place to negotiate.Anybody could make devices with a successful OS and ecosystem. So better to have a say in its journey. Without this buy in even success of Windowsmobile might drown Nokia. That will be strange.! So Nokia has to be very clear if it wants windows mobile to succeed without being part of it (just making devices out of it)

# Focus on LTE for the US, China/Japan/Europe market – release at least 8-10 devices / year with diff form factors. Focus on new enablers for LTE including location enabled apps, and next gen eUTRON. Make 3G centric devices for other developing markets with less cost , end to end application capabilities.
# In the 90s and early 2000s , operator centric strategy was common for OEMs. Now keep operators at arms length. Include them without including them.!!
# Enter into tablet market aggressively with a common developer community. Aggressively grow the community.
# If feasible , buy RIM and make strong pitch in enterprise devices just like PCs of the last few decades. With RIM , Windows mobile and .NET in the folds it would difficult to beat them in the enterprise market.
# Reduce Time to market by 50%. Within 6 months of product conception , it must be out in the market.
# Force Microsoft to develop Test Automation for Windows.
# Create a new internet centric end to end ecosystem .
# Have a strong roadmap of Convergence. – devices, ecosystem , application etc
# Try to be as open as possible(open for multiple chipsets) – do not include semiconductor companies for the joint operation.

..Sriram

sriram Monday, February 13, 2012 at 3:53 AM PT

I agree with Sriram, one or two products a year can't let you win the race. Samsung is launching so much of products in a year and is fighting for the #1 spot with Apple. If Nokia wants to be in the business, launch a range of products.

Rohit Monday, February 13, 2012 at 5:29 AM PT

Not true. Apple always maintained a very simple, streamlined product line, but they are consistently excellent products.

Sramana Mitra Monday, February 13, 2012 at 9:47 AM PT

Ya, my mistake. About Apple you are right but talking about the future of Nokia only, it is very essential that they launch some new handsets specially giving more features in less price. Like Samsung launched their Galaxy series in different budgets keeping in mind every class of audience.

Rohit Monday, February 13, 2012 at 9:49 PM PT

and you think Nokia is not doing that. From October 2011 to March 2012- Lumia 800, 710, 900, and now 610 and still working on variants such as CDMA models. Do you want to change phones like baby diapers? Do you know how long does it take to create a new product?

akcme Sunday, March 25, 2012 at 2:11 AM PT

Its always a debatable point on what is the right number of products. You will never release products assuming that its sales will reach 50M and more. Very few products like iph , probably Motorola Razr have reached >50M sales. That cannot be the strategy of companies. Apple was just entering the business of phones and they were not ready to release more phones / year. So they focused on differentiators only. If iphones had not been as successful , not sure what Apple would have done. They might have even stopped being in this business.

So my point is still launch more products with diff price range , FFs, diff market audience..etc.
Success factors of one company seen in hindsight cannot be the strategy for other companies.
They may go to oblivion .

Sriram

sriram Monday, February 13, 2012 at 10:08 PM PT

Personally, I much prefer simple product strategies … I don’t like a whole range of mediocre products as a strategy.

Sramana Mitra Tuesday, February 14, 2012 at 10:10 AM PT

Thanks for all the inputs. Excellent points.
Everybody likes to have platforms whose phone models can sell in tens of millions.
Device strategies for companies like Nokia where you are trying to hold on
to your market share cannot be the same as that of new entries. Nokia will surely be thinking on how to hold on to 100M smartphone share / year.Nokia has an excellent record of hitting 5-6 million / symbian model on an average. Nokia has chosen Windows as the platform to rely on where average sales/model is just close to 900K – 1M as its history (as per data available on the web) . Considering all these data , 1-2 Million windows sales is nothing for an org of that size. Even I am sure there are close to 100 android models in the market towards a sale of 240M in 2011. That comes close to 2-3 M / model which is good. If some organization thinks that they can sell 20M windows phone /model and plan accordingly , i am sure they would be ruing their decision. Probably there is an inherent limitation of the PF to be liked by only some sections of the public/market. This is where my thoughts were to combine other forces which I have mentioned.

Nokia must focus on Enterprise market where tablets may not succeed so much as to replace Laptops. At least for the enterprise , we need content creation devices. This is where they need to make better use of Microsoft who have vast experience here and make devices accordingly. Space for innovation from Nokia

Thanks once again for the interest shown.

..Sriram

sriram Tuesday, February 28, 2012 at 9:11 AM PT

Don't predict the future looking at past, if you want to do that then tell me a story about iPhone lanuch and its failure? I think they started slow with very low expectations and grew outrageously in last few quarters. Their growth have been partly due to fanbase and partly due to lack of products from Nokia. Here is my thought, Nokia didn't bleed as much in 2010 as in 2011 and 2011 bleeding was due to announcement of abondoning Symbian. People who follow news all the time knew that Nokia is not going to develop anything new based on Symbian so many Nokia fans just didn't shop Nokia. They went to other smartphone platforms (iOS and android). Once they see that Windows phone software is as good as iOS and android (personally speaking WP7 is far better than static iOS and I am not a windows fan boy) those customers may come back to Nokia again.

Its hard to forget the first crush/love, they keep haunting us. lol!! Don't worry, Nokia is doing everything right, and everything is in smoke phase right now, wait for it to become a fire.

akcme Sunday, March 25, 2012 at 2:24 AM PT