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Nokia’s Struggles Continue

Posted on Wednesday, May 1st 2013

IDC’s latest Worldwide Quarterly Mobile Phone Tracker, released last week, saw the worldwide mobile phone markets grow 4% over the year to 418.6 million units during the first quarter this year. This was the first ever quarter when smartphone shipments surpassed shipments of feature phones. Total smartphone shipments during the quarter came in at 216.2 million units, reporting growth of 42% over the year. Another trend noticed was the inclusion of Chinese companies such as Huawei and ZTE on the list of leading smartphone vendors as they made significant progress with the less expensive Android-based smartphones. Overall, Samsung’s dominance grew to 28% of the worldwide mobile phone market, with shipment of 115 million units during the quarter. Nokia came in a distant second, followed by Apple.

Nokia’s Financials
Nokia’s (NYSE:NOK) woes are not ending soon, and they are fighting at all ends to ensure they get back their lost ground. During the quarter, IDC estimated that Nokia’s market share fell from 21% a year ago to 15%. Q1 revenues fell 20% over the year to €5.82 billion (~$7.60 billion), missing the market’s target of €6.5 billion (~$8.50 billion). Loss per share of €0.08 (~$0.10) was ahead of the Street’s target of €0.11 (~$0.14) for the quarter.

By segment, revenues from Devices & Services fell 32% over the year fell to €2.89 billion (~$3.77 billion). Revenues from Nokia-Siemens Networks equipment joint venture fell 5% over the year to €2.8 billion (~$3.66 billion).

Nokia’s Smartphone Growth
Nokia is trying to regain some of their lost market share with the launch of their Lumia series. Analysts believe that Lumia may hold the baton for Nokia’s recovery. Sales may be slow now, but the phone is gradually eating into Samsung’s profit share. Sales of the phone grew 27% over the quarter to 5.6 million units. High-margin Lumia sales are also helping Nokia improve overall profitability.

Nokia expects that growth to continue and estimates more than 7 million units being sold during the current quarter. They are working on making the Lumia 920, currently exclusively available in the U.S. with AT&T, available to other network providers. They also plan to launch a new Lumia phone, Lumia 928, later next month to help keep this momentum on. Initially, the phone is expected to be sold exclusively by Verizon in the U.S.

Nokia’s Emerging Market Focus
Nokia also realizes that they are late entrants into the smartphone market and to regain their lost strength, they need to deepen their presence in the emerging markets with advanced and value-for-money feature phones.

Last week, Nokia released Asha 210, the latest Wi-Fi–compatible feature phone that includes capabilities such as the WhatsApp messaging app that lets users send instant messages across multiple operating systems, including iPhones, BlackBerry, Android, Windows Phone, and Nokia; a 2MP camera; built-in voice functions; a QWERTY keyboard; and a YouTube launcher. The phone comes in two variants, with either single or dual SIM options. The phone is expected to retail at $72 and will be shipping during the current quarter to markets including those of Africa, India, and Pakistan, among others.

Despite the release of newer models, sales in these markets are not as impressive as Nokia would want them to be. Feature phone sales globally fell 25% over the year. In China, Nokia’s revenues from mobile phones fell by more than 50% over the year. The decline was attributed to the growing availability of cheaper Android-based smartphones and the absence of low-end Lumia options in the Chinese market. Nokia plans to correct this by launching their cheaper line of phones, the 720, 620, 520 models with China Mobile, ahead of phone releases scheduled by competitors during the year.

In addition, they continue to work on developing a cheaper line of phones. Both China and India are being flooded by phones sold by Chinese manufacturers. In fact, MediaTek of China is selling $20 phones in China and India. Beating a price tag like that will be difficult for Nokia. Even if they manage to do it, the phones will hurt their margins.

The market is not pleased with Nokia, and their stock is trading at $3.32 with a market capitalization of $12.32 billion. It touched a 52-week low of $1.63 in October 2012.

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