March 1, 2024

Nokia Trims Loss, but Sales Fall

Although sales of Nokia’s Lumia Windows smartphones increased by 27 percent, investors focused on the weakness in sales of its basic cellphones, which are the bulk of Nokia’s business.

Nokia, the former cellphone market leader that has tied its future to a smartphone collaboration with Microsoft, reported a 20 percent decline in quarterly sales, to 5.9 billion euros, or $7.7 billion. Shares in Nokia, which is based in Espoo, Finland, fell as much as 6 percent in Helsinki.

Stephen A. Elop, Nokia’s chief executive, said concerns about the progress of the company’s turnaround were overstated. He noted that Nokia’s financial results, and its smartphone business, showed continued signs of improvement.

“Yes, there are challenges, but we are actually pleased with the progress made so far,” Mr. Elop said in an interview.

Nokia trimmed its quarterly loss to 272 million euros, from 978 million euros a year earlier. “The problem is that there is still some uncertainty about whether the company’s survival strategy will work,” said Benedict Evans, an analyst at Enders Analysis in London, “and the market is seizing on any evidence of success or a setback.”

Two years into Nokia’s collaboration with Microsoft, the Finnish company is steadily building sales of the Lumia line, but those gains have not offset the erosion in sales of its basic models. Nokia sold 55.8 million of those so-called feature cellphones in the quarter, down from 70.8 million a year earlier, the lowest level in more than a decade, Mr. Evans said.

That part of the business has been shrinking as half the buyers of mobile phones shift to smartphones. Those remaining buyers are lured by low-cost Asian rivals, like MediaTek of China, which are flooding China and India, two of Nokia’s traditionally strongest markets, with $20 cellphones.

With its latest results, Nokia has posted an operating profit in three consecutive quarters, Mr. Elop said. The expansion of the Lumia line bodes well for the future, which will increasingly be shaped by the smartphone business. In the first quarter, Nokia sold 5.6 million Lumia phones, an increase from 4.4 million in the fourth quarter.

The average selling price of a Nokia smartphone rose 34 percent in the quarter, to 191 euros ($251).

In a conference call with investors, Mr. Elop, a former Microsoft executive, said he expected the rate of growth in Nokia’s smartphone sales to accelerate in the second quarter, with the pending introduction of a new model in the United States. Carolina Milanesi, an analyst with Gartner in San Jose, Calif., said Verizon Wireless was expected to begin selling a top-of-the-line Lumia handset this month.

“This phone is going to have a major positive impact on Nokia because Verizon Wireless is the market leader,” Ms. Milanesi said. “This will significantly boost U.S. distribution.”

Nokia already sells Lumia phones through ATT and T-Mobile USA.

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Nokia Trims Its Loss, as Expected

The Finnish mobile phone maker also reported an unexpected fall in sales at its previously upbeat equipment venture, Nokia Siemens Networks.

Nokia, which has fallen behind Samsung and Apple in the smartphone race, said it sold 5.6 million units of Lumia handsets in the first quarter, up from 4.4 million in the previous quarter and in line with expectations.

But overall net sales fell 20 percent to 5.9 billion euros from a year earlier, while phone volumes tumbled 30 percent on the previous quarter.

It forecast margins in its devices and services business would be “approximately negative 2 percent” in the second quarter, down from a positive 0.1 percent in the first quarter.

“The shortfall is in the mobile phone side, where both volumes and average selling prices came lower than expected,” said Hakan Wranne, analyst at Swedbank. “That is, of course, a bit worrying, since that has been their bread and butter business in the devices and services unit. I think we will see the market’s profit estimates for 2014 come down.”

Nokia shares were down more than 9 percent in late morning trading, having been as low as €2.30, a far cry from their peak of €65 in 2000 and even the €4 to €5 euros many analysts see as the sum value of the company’s parts, which include its handset business, Navteq mapping unit and stake in Nokia Siemens Networks.

Investors have been growing impatient about seeing results from Stephen Elop, who was hired as chief executive in 2010 to lead a turnaround and made the decision to switch to the untried Windows software in early 2011.

Mr. Elop had said the transition would take about two years, a period that is now over, raising questions about how much longer he has to show that the company is on the right track.

“Basically, he has only the second quarter,” said Mikko Ervasti at Evli, a Finnish investment banking and wealth management group.

Nokia has been bleeding cash and was forced to cancel its dividend and sell and lease back its headquarters to fill its coffers, though its net cash position by the end of March had unexpectedly improved to €4.5 billion from €4.4 billion three months earlier.

The company’s first-quarter underlying loss, which excludes special items, decreased to 2 euro cents a share from 8 a year earlier. Markets had expected a loss of 4 euro cents, according to a Reuters poll.

While Nokia still sells more regular mobile phones than smartphones, its future depends on higher-margin smartphones as a growing number of global consumers want access to apps from their handsets.

The smartphone industry’s top two players show little sign of ceding market share. A Reuters survey showed that the market estimates Samsung shipped around 61.6 million smartphones in the first quarter, while Apple shipped 36.9 million iPhones.

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Nokia Unveils Low-Priced Phones

BARCELONA — Nokia on Monday introduced two new low-priced basic cellphones, plus two lower-priced versions of its flagship Lumia Windows smartphone — part of an effort by the former market leader to compete amid an intensifying price war in handsets.

The four new phones — the Lumia 720, Lumia 520, Nokia 301 and Nokia 105 — will help Nokia maintain and perhaps build on its position as the No. 2 maker of cellphones worldwide behind Samsung and fend off challenges by two Chinese manufacturers, Huawei and ZTE, analysts said.

The Lumia 520, selling for €139, or about $183, in Europe and $179 in the United States, is priced 25 percent less lower Nokia’s least-expensive smartphone, the Lumia 620.

“I think that with the Lumia 520, Nokia is really going to take the Windows 8 operating system to a much bigger, mass market,” said Pete Cunningham, an analyst at Canalys, a research firm in Reading, England. “I would expect their volumes of Lumia shipments to now start increasing slowly, but they still have a way to go.”

Samsung overtook Nokia last year as the leading global maker of cellphones, amassing a 23 percent market share. Nokia’s market share slipped to 17.9 percent from 24 percent during 2012, according to the market research firm IDC. Apple ended the year in third place at 9.9 percent, followed by ZTE, with 3.6 percent, and Huawei, with 3.3 percent.

The new handsets, which the company unveiled at the Mobile World Congress industry convention in Barcelona, reinforced Nokia’s strategy of targeting the least-expensive but fastest-growing parts of the market. The Nokia 105, the company’s new basic, entry-level phone, will sell for €15 — less than the price of a pizza in some countries.

T-Mobile U.S.A. has agreed to sell the Lumia 520, a 3G phone with a 4-inch touchscreen, in the United States starting in the second quarter, Nokia said.

In 2012, the global market for cellphones that cost $250 or less grew by 99 percent from its level in 2011, and accounted for more than half of all cellphones sold worldwide, according to IDC. The upper-end segment of smartphones costing more than $250 grew by only 23 percent during the same period.

“Nokia is targeting the right end of the market with new, inexpensive phones,” said Francisco Jeronimo, an analyst with IDC in London. “This is where the growth is.”

Nokia, the global market leader in smartphones as late as 2007 before Apple produced its first iPhone, trailed the likes of Blackberry, LG and Motorola with a roughly 4 percent market share in the fourth quarter, according to IDC. Huawei and ZTE, the No. 3 and No. 5, each sold more than twice as many smartphones as Nokia.

This year for the first time, more consumers around the world will buy a smartphone than a simple, basic cellphone, according to IDC.

Stephen Elop, the Nokia chief executive, said the new, lower-priced Lumia handsets would give the company a full array of smartphones it had been lacking.

“These are less-expensive devices, but they will move in much larger volumes,” Mr. Elop, a former Microsoft executive, said during an interview.

Mr. Elop said Nokia was committed to making some of Lumia’s unique features, such as digital lenses that allow users to enhance their own photos, available throughout the entire Lumia lineup, instead of reserving the most advanced features for the most expensive handsets.

The Nokia-Microsoft alliance that was announced two years ago in February 2011, Mr. Elop said, is gaining momentum. He dismissed the possibility that the company would eventually abandon its software partnership with Microsoft for another operating system, such as the Android system made by Google.

“There’s no doubt in my mind that that was the right decision” to choose Microsoft, Mr. Elop said. The alliance with the world’s largest software maker has set Nokia apart from handset makers relying on Android, Mr. Elop said, preserving an identify and edge for Nokia and its products.

With the Lumia line of smartphones expanding, Nokia can begin to sell Microsoft phones increasingly to businesses, which may already be reliant on Microsoft Windows and e-mail services in their operations, Mr. Elop said.

“Being able to bring those all together I think is a very powerful force,” he said. “And it’s something that’s just beginning.”

Nokia sold 4.4 million Lumia smartphones in the fourth quarter, up from 2.9 million in the third quarter. Mr. Elop declined to say how sales of Lumia had develpoped in the first two months of the year. But he suggested that the three new handsets introduced over the last three months would help sustain sales momentum.

The Lumia 920, 820 and 620 are new devices that will translate into new sales, he said. “All of those things will contribute to what we hope to see in the future,” he said.

In the fourth quarter, Nokia generated an profit of €202 million, compared with a loss of €1.1 billion a year earlier.

The Nokia 301, a mid-range feature phone, will be introduced in the second quarter and sell for €65. The 3G handset can display streaming video and comes with a 3.2 megapixel camera and panoramic, wide-angle lens. The Nokia 105 will eventually replace the entry-level Nokia 1280, which sold more than 100 million units in the past two years.

The Nokia 720, which will be sold initially in Asia and Europe, is a 3G handset targeting social media users. The phone, which will sell for €249, comes with 8 gigabytes of internal memory and an SD-card slot for additional storage. China Mobile has agreed to sell the handset in China starting in the second quarter, Nokia said.

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2 Years Into Nokia Turnaround, Some Good News

Mr. Elop painted the bleak outlook as he prescribed a radical cure for the Finnish mobile phone pioneer: The rejection of the company’s own Symbian smartphone operating system for a shotgun wedding to Microsoft, itself stumbling badly with smartphone software. After that, sales slumped sharply, losses mounted and huge layoffs followed.

On Thursday, he delivered unexpected good news: a profit. Sales of its new smartphone line, the Lumia, powered by Microsoft’s Windows Phone operating system, soared more than 50 percent in the fourth quarter of last year, according to preliminary financial information.

In what was seen as a make-or-break quarter, Mr. Elop said Nokia would break even or turn a 2 percent profit rather than report a loss as large as 10 percent, as analysts expected.

Nokia will report its earnings on Jan. 24.

Wall Street reacted to the announcement by sending Nokia’s American depositary receipts up 18.67 percent, or 70 cents, to $4.45.

“While we definitely experienced some tough challenges in the first half of 2012, we are managing through these issues,” Mr. Elop said in a conference call with journalists.

What Nokia has accomplished under Mr. Elop is to produce a line of increasingly competitive smartphones that are starting to draw favorable comparisons with those from Samsung and Apple, the two companies most responsible for knocking Nokia from its lofty perch.

“The Lumia smartphones are night-and-day different from Nokia’s old Symbian handsets,” said Francisco Jeronimo, an analyst with the International Data Corporation in London. “I think what we are starting to see now is what will be a steady turnaround in Nokia’s fortunes.”

The company, which dominated the cellphone business until Apple introduced its iPhone in 2007, still has a long way to go to achieve its former stature. In the third quarter, Nokia held on to a 4 percent share of the global smartphone market, and was ranked a distant No. 10 in the sector, according to Strategy Analytics, a research firm.

Samsung and Apple, the No. 1 and No. 2 smartphone makers, together had 50 percent of the global smartphone market, and their sales were growing. While its competitors rose, Nokia has generated nearly 5 billion euros ($6.5 billion) in losses under Mr. Elop, and eliminated a third of its work force.

The key to its turnaround was the introduction in October of the top-of-the-line Lumia 920 and 820, which used the new Windows Phone 8 operating system. Since then, Nokia has spent heavily on advertising in Britain and Europe to promote the models. The company will not disclose how much it had spent on its campaign, but its television ads were ubiquitous over the holidays, said Neil Mawston, an analyst at Strategy Analytics in London.

The heavy promotion, which was aided by Microsoft’s own advertising, has helped the company recapture some of its lost glory, Mr. Mawston said.

But he warned that “Nokia still lacks the true killer phone that will enable it to compete with the iPhone 5 or Samsung Galaxy S III.” He expected Nokia’s share of the global smartphone market to rise to 6 percent by the end of the year.

The company’s financial position is likely to revive even more quickly as a result of the strict cost-cutting imposed by Mr. Elop, who ran Microsoft’s business software division before joining Nokia in late 2010.

Since then, Nokia has shut factories across Europe. Last month, the company sold its 540,000-square-foot glass-and-wood headquarters in the Helsinki suburb of Espoo to Finnish investors, and leased it back. The maneuver netted Nokia 170 million euros.

Besides a more competitive array of phones, Nokia has discarded its market-leader mentality. Employees are now routinely traveling in economy class and sharing rides to airports. Workers no longer use costly telephone conference calling but speak in group teleconferences using less expensive Internet calling services.

“The company is a lot smaller now but people are working better together,” said Susan Sheehan, a Nokia spokeswoman. “Everyone has been pitching in.”

Even at Nokia Siemens, the company’s long-suffering network equipment venture, the future is looking brighter than it was two years ago. On Thursday, Nokia said the unit, which contributes about 40 percent of total sales, would report an operating profit for the quarter, its third consecutive quarterly profit.

Nokia, in its announcement to investors, even revised the operating profit margin forecast at the venture to 13 to 15 percent of sales, up from a range of 4 to 12 percent.

Looking ahead, Nokia said it expected to return to an operating loss of 2 percent of sales because of the first-quarter postholiday buying lull and fierce competition. But the results for the coming three months could vary widely.

Pete Cunningham, an analyst at Canalys, a research firm in Reading, England, said that Nokia still faced challenges. “2013 could still turn out to be another very difficult year for Nokia. It is way too premature to say that the company has made a turnaround.”

Mr. Cunningham said he used the Lumia 920, Nokia’s newest smartphone, during the Christmas holidays and liked it.

“But the more I used the phone, the more apparent it became to me that there are big gaps between Lumia and its competitors in terms of the functionality and usability of its apps,” Mr. Cunningham said.

“I still think there is a lot of work to be done on Lumia.”

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Bits Blog: Microsoft and Nokia Unveil New Lumia Phones

In a screenshot from Nokia's webcast of its event, Kevin Shields, a senior vice president at Nokia, discusses the Lumia 920.In a screenshot from Nokia’s webcast of its event, Kevin Shields, a senior vice president at Nokia, discusses the Lumia 920.

Microsoft and Nokia, two companies that have not gotten much traction in the smartphone market, are hoping for another chance. The companies on Wednesday unveiled a Lumia smartphone that includes the Windows Phone operating system — new models of products that have not sold well.

At a news conference in New York, Nokia and Microsoft showed the Lumia 920, a smartphone that includes its camera technology called PureView and a wireless battery-charging capability. It also briefly introduced the Lumia 820, a mid-priced smartphone with exchangeable covers. The smartphones run Windows Phone 8, the latest version of Microsoft’s mobile software system.

“This is the most innovative smartphone in the world,” said Jo Harlow, Nokia’s executive vice president. She said the smartphone takes better pictures and video, especially in low light, than any other phone camera on the market, and that it would include access to Nokia’s mapping database, which provides maps for 200 countries.

Nokia, once the biggest phone maker in the world, was dethroned by Samsung earlier this year. Based in Finland, Nokia has been trying hard to gain a foothold in the smartphone market with its Lumia line. It tried to make a big splash this year with the Lumia 900 on ATT, which cost $100 with a two-year contract. Both ATT and Nokia backed this phone with an enormous promotional campaign, but sales were still lackluster.

On Wednesday the company demonstrated a feature called Nokia City Lens, which allows people to point the Lumia camera at restaurants and other local businesses and see reviews digitally overlaid on top of the image. It also showed the Fatboy, a pad that the phone can be placed on to charge its battery.


Microsoft used Nokia’s new phone to rehash some new tools in Windows Phone 8, like the ability to stitch together multiple images into a panorama with a feature called PhotoSynth. Later in the event, Steve Ballmer, Microsoft’s chief executive, said the new Lumia devices foreshadowed a big year for Windows.

“This is a year for Windows,” said Mr. Ballmer, referring to phones, tablets and PCs that would soon run Windows 8 or Windows Phone 8. “All of the devices are designed to be beautiful and functional, to work for you in your personal life and your professional life.”

The companies did not disclose prices or release dates for either of the phones, but said they would arrive in some markets in the the last three months of this year.

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Bits Blog: Why Nobody Will Play Nice With Windows Phone 7

Nokia's Lumia 800 runs Windows Phone 7.Paul Hackett/ReutersNokia’s Lumia 800 runs Windows Phone 7.

Microsoft’s Windows Phone 7 software has a unique, modern design that many say is superior to Android’s more rugged, computery look. But a former Microsoft employee says looks alone are not enough to make Windows Phone succeed.

Microsoft introduced Windows Phone 7 in November 2010, and has since formed a major partnership with Nokia in hopes of gaining a foothold in a mobile market that is increasingly dominated by Apple and Google. Despite the company’s best efforts, sales of Windows Phone 7 handsets are still tiny.

Charlie Kindel, an entrepreneur who recently left Microsoft’s Windows Phone team to start his own company, wrote a blog post Monday on why the software still hasn’t taken off. He breaks down what each party in the cellphone business wants — most notably, the carrier and the hardware maker.

The carrier wants to control the customer experience, and the manufacturer wants to own that and the hardware design as well. This is precisely why Windows Phone 7 faces hurdles, Mr. Kindel says.

To explain, Mr. Kindel analyzes Apple’s approach with the iPhone and Google’s approach with Android. With the iPhone, Apple controls the design of the software and additional transactions through the App Store, and it controls its own destiny with hardware because it makes the iPhone itself.

With Android, Google licenses the software to any manufacturer that wishes to use it, and allows the carriers to distribute Android software updates whenever they want. Many hardware makers and carriers are willing to play ball with Android, because it “bows down” to them.

With Windows Phone 7, Microsoft tells the carriers when they must issue software updates, and tells manufacturers how they must design the phones in order to run the operating system. This ensures a consistent experience among different devices.

And that is why Windows Phone faces so much difficulty gaining traction in the market, Mr. Kindel says. It creates friction among Microsoft, the carriers and the manufacturers.

“WP says ‘here’s the hardware spec you shalt use’ (to the device manufacturers). And it says ‘Here’s how it will be updated’ (to the carriers). Thus both of those sides of the market are reluctant,” Mr. Kindel writes.

That could explain why carriers do not immediately support every new Windows handset that hits the market. The brand-new Windows phone made by Nokia, the Lumia 710, for example, will initially be available on T-Mobile, while the bigger carriers ATT and Verizon have not announced plans to offer it.

Mr. Kindel’s post has stirred debate among technology pundits, like Robert Scoble, who criticized him for neglecting to highlight the importance of apps.

“I had dozens of people here for several events this weekend. Phones came up in nearly every conversation. Not a single person brought up Windows Phone 7,” Mr. Scoble wrote. “While watching TV I was reminded again of why: it’s all about apps.”

Mr. Scoble said that all people talk about today is what they can do with their phones using apps, and that businesses are constantly chattering about the apps they create to connect with customers. Therefore, apps act as a “lever” for the operating system maker to overpower the carrier, he argued.

Just where is Microsoft’s opportunity? Mark Winther, a telecommunications analyst at the research firm IDC, says Microsoft should focus on business customers.

“Social, cloud and mobile: It’s a marriage made in heaven that a lot of enterprises want,” Mr. Winther said in an interview. “So what is a huge enterprise environment today? It’s Microsoft, which is all over communications and collaboration tool sets.”

Mr. Winther explained that if Windows Phone 7 gracefully integrated with desktops and business software like Exchange and SharePoint, then it would gain a major advantage over iOS, the Apple mobile operating system.

He acknowledged that business customers are a smaller market than consumers, but said this niche still presents an opening for Windows Phone 7 to compete.

“Clearly the consumer individual is the gigantic market, and enterprise is small compared to that, but I think this is an opportunity,” Mr. Winther said.

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