Nokia Q2 results highlight just how much is riding on Windows Phone
By Chantal Tode
July 23, 2012
The Lumia 900 from Nokia
While analysts did not respond well to Nokia’s latest quarterly financial results, cutting their price targets for the company, all hope may not be lost yet as Nokia takes moves to cut costs and raise money while it waits for the Windows Phone to catch on.
Much of Nokia’s future currently rides on how well its smartphones built on the Windows Phone operating system do. While early results are positive, the company could run out of cash before more widespread adoption kicks in.
“Nokia has received criticism for relying too much on the Windows Phone platform,” said Julian Jest, research analyst for handsets and devices at Informa Telecoms & Media.
“While there are other options, such as using the Android OS, Nokia is right to persevere with the Windows Phone OS,” he said. “Lumia sales have picked up in 2012, particularly in North America, a key market in which Nokia has struggled in recent times.
“Admittedly Nokia is running out of time; however it still has sufficient cash to make it through subsequent quarters, and is willing to do whatever it takes, whether it be decreasing its work force or spinning off parts of the business not relevant to its central strategy, such as luxury phone brand Vertu.”
Lumia a bright spot
Finnish Nokia Corp. reported a net loss of $1.74 billion for the second quarter, which is a significantly bigger loss than a year ago.
Smartphone sales declined 34 percent during the same period while net sales on devices were down 26 percent compared with a 5 percent decline in the first quarter.
Additionally, Nokia said it has $5.17 billion in net cash, which is down from $5.9 billion in the first quarter.
One bright spot in the otherwise poor results was the Lumia line of smartphones built on the Windows Phone OS.
Nokia said it sold four million Lumia devices in the second quarter, up from two million in the previous quarter. The growth was driven by expanded availability.
Looking ahead, the company expects the launch of Windows 8 for PCs and tablets plus the launch of Windows Phone 8 to help drive further growth for Lumia.
Windows Phone 8 will share the same Metro user experience and core operating systems technologies as Windows 8. This will provide a way for developers to create applications across devices and help familiarize PC, tablet and Xbox users with the look and feel of the Lumia interface.
Nokia also hopes to benefit from an anticipated aggressive marketing campaign from Microsoft for Windows 8.
To address this opportunity, Nokia is planning to launch Lumia devices across a broad range of price points.
“We are committed to Windows Phone as our primary smartphone strategy,” said Stephen Elop, CEO of Nokia, in a conference call with analysts to discuss the results. “We have learned that it takes tremendous amount of work to break through as the third ecosystem, and we are viewing the launch of Windows 8 and Windows Phone 8 as an important moment in this journey.”
Tough second half ahead
However, with the new OS not anticipated until sometime this fall, Nokia likely still has at least a couple more tough quarters ahead of it.
As Nokia waits – and hopes - for the Windows Phone windfall to happen, it is taking steps in the meantime to cut costs and raise cash and help return its device business to positive cash flow.
Last month, the company announced a restricting plan that included the closing of two plants around the world.
Additionally, Nokia sold its high-end handset business Vertu to private firm EQT.
“As a stand-alone OS Windows Phone will not succeed, and will remain a niche product,” Mr. Jest said.
“However, Microsoft has a huge market share in terms of desktop computers, laptops and Ultrabooks,” he said. “The release of Windows 8 across multiple platforms, including the new Surface tablet, will provide the consumer with more exposure to OSs unique features and benefits, and will give the boost in sales that Nokia needs.
“However, the biggest challenge that lies ahead for Nokia is maintaining its market share in China where it faces tough competition from local brands.”
Chantal Tode is associate editor on Mobile Marketer, New York
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