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Nokia Banks on Lumia for Turnaround

Posted on Wednesday, May 2nd 2012

Nokia hasn’t yet found a way out of its troubled waters. The company has been the leading handset maker since 1998 and reached a 40% global market share by 2008. However, the market share has significantly shrunk since to less than 29% last year. And market share continues to shrink. According to Strategy Analytics, Samsung shipped 93.5 million handsets last quarter compared with Nokia’s 82.7 million. Within the smartphone segment, Samsung and Apple’s combined market share grew from 30.3% last year to 54.8% this quarter. Over the same period, Nokia saw its smartphone market share fall from 23.5% to a mere 8.2%.

Nokia’s Financials
Nokia’s (NYSE: NOK) sales continued to plummet during the quarter. Q1 revenues were down 29% over the year to Euro 7.4 billion (~$10 billion). Cell loss of Euro 0.08 (~$0.10) per share was wider than the market’s projected loss of Euro 0.07 (~$0.09) per share.

By segment, Nokia’s core devices and services division revenues fell 40% over the year to Euro 4.24 billion (~$5.6 billion). Smartphone sales fell 52% over the year to Euro 1.7 billion (~$2.2 billion). Smartphone unit sales fell 16% over the year to 11.9 million, and feature phone unit sales fell 51% to 70.8 million. Nokia attributes the decline in phone sales to its Windows strategy as the company moves away from Symbian-based phones.

Nokia expects to continue to sustain losses in the current quarter, too, driven by increased advertising costs for Lumia phones and the continuing losses with the Siemens equipment joint venture. Earlier, Nokia had projected a break even quarter. To control costs, Nokia executives announced plans to cut over 10,000 jobs during the year and also shifted their production base from Europe to lower cost Asia.

Lumia’s Growth
Nokia management was pleased with Lumia’s performance in the U.S. as they are seeing more demand than supply. Lumia was on Amazon’s mobile-phone best seller list last week and carrier partner, AT&T ran out of available stock at some of its outlets and the online store. However, the phone is not faring as well in the U.K. Nokia is finding it difficult to compete with the iPhone and other Android-based devices.

Nokia plans to launch its Lumia 610 series, the least expensive Lumia option, in Asia this month. The company will begin by offering the phone in the Philippines then expand to Singapore, Vietnam, Taiwan, Indonesia and Malaysia. Nokia is convinced that there will be a strong, positive response to Lumia in these markets.

Overall, Lumia has been received rather well. Since its launch last year, Nokia sold over a million phones in Q4 and sales crossed 2 million units during the previous quarter, thus averaging sales of over 1 million units a quarter. It took a year for the iPhone and a year and a half for Google to get more than 2 million of their devices in the market.

Nokia is also working on launching a less expensive version of Lumia phones but has not yet divulged details. One can only hope that Nokia does this soon to stop the market share from falling any further.

Nokia’s China Expansion
Nokia is counting on growth in China to regain market supremacy. Unfortunately, this quarter, China was a tough market as revenues from the country fell 70% during 2011, driven by the strong price competition in the base cell phone models. Nokia plans to change that with sales of Lumia through a venture with China Telecom that has a 3G subscriber base of over 126 million users. Nokia will extend the partnership to other carriers in the country, including China Unicom and China Mobile, the leading operators in China.

Analysts believe that smartphone sales in China will grow 65%  to more than 120 million units this year. Nokia is counting on that growth to address the market.

Nokia Realigns Products
Nokia is also working on expanding its product lineup and  Windows Strategy by developing a tablet device. The tablet, which will have a 10-inch screen, will be  powered by Windows 8 and is expected to be in the market by the end of this year. Analysts believe that Nokia has already begun production and the first shipment of over 200,000 units will be ready soon.

Nokia is also in talks to sell off its ultra luxury brand Vertu. Vertu offers Symbian-based luxury cell phones and is known for its gold crusted phones, some of which retail at over $320,000. The company is expected to be working with private equity group Permira to sell Vertu for an anticipated Euro 200 million (~$265 million).

Nokia’s stock has tumbled to year low levels of $3.65 with a market capitalization of $13.54 billion. It touched a year high of $9.38 in May last year.


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