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Nokia posts another weak quarter as it fails to ignite smartphone sales

Nokia continues to struggle, reporting another drop in shipments and sales during the first quarter of 2012. With the momentum continuing to gain behind iPhone and Android, it will likely take the rest of the year, if not longer, for Nokia to regain its lost footing.

In the first quarter, Nokia had a net loss of $1.2 billion and saw its shipments drop 24 percent for a total of 83 million phones, the lowest level in almost six years. While the slow growth in Windows Phone is part of Nokia?s problem, the manufacturer is also facing growing competition from low-priced Android devices in emerging markets.

?Nokia?s attrition in smartphone space has allowed Android and Apple to significantly capture smartphone market,? said Neil Shah, wireless device strategies analyst at Strategy Analytics, Newton, MA. ?The smartphone market has become a ?duopoly? dominated by Samsung with Android and Apple with iOS platforms.

?Nokia will though continue to remain in shadows of Samsung and Apple for some time now as Windows Phone ecosystem is growing fast but still not at a volume run-rate of Android or Apple,? he said.

The Android challenge
The first quarter results show Nokia?s revenues fell 30 percent to $9.7 billion, with the drop driven by declining handset sales in emerging markets and lower margins for smartphones.

Net sales of devices dropped 40 percent to $5.5 billion while smartphone sales dropped by more than half for a total of $2.2 billion.

The first quarter results follow a weak last quarter of 2011, when Nokia reported a net loss of $1.4 billion and a 23 percent drop in smartphone sales.

There are three key reasons for Nokia?s current situation. 

First, the handset manufacturer is undergoing a painful strategic transformation as it abandons the aging Symbian platform and moves to embrace Windows Phone as its primary platform for smartphones. Unfortunately for Nokia, this transition is coming at a time when the demand for smartphones is growing rapidly.

A second reason for the problems is that Nokia has failed to produce a hero smartphone that can deliver high profits and strong volumes.

Additionally, while Nokia?s limited presence in the United States hurt its growth last year, increasingly its problems lie more in emerging markets where low-cost smartphones are taking off.

?The pain point has shifted from the U.S. to China for Nokia,? Mr. Shah said. ?Low-cost Android smartphones are now directly challenging Nokia?s feature phones in emerging markets.

?Who will buy a U.S. $100 non-touch feature phone when you can get an Android smartphone at the same price point??

Cross-over point
Nokia CEO Stephen Elop said in a statement that the company is facing greater than expected competitive challenges as it continues its transition to Windows Phone.

The company is making investments in its mobile phones business to address gaps in its offering and continues to implement its smartphone strategy, including expanding its portfolio of Lumia Windows Phone devices at both the high end and low end of the market.

Nokia launched the Lumia 900 with AT&T in the U.S. in April.

The company said sales for Lumia have exceeded expectations in the U.S. but that establishing momentum in Britain and other markets has been more challenging.

Nokia initiated cutbacks last year to cut costs and has not ruled out additional cutbacks this year.

?Nokia is still in the transition phase but will go full force with a much broader, more profitable Windows Phone Lumia portfolio in coming quarters leveraging its huge distribution reach to claw back to profitability,? Mr. Shah said.

?The last quarter of 2012 should be ?the cross-over point? for Nokia when profitable Lumia smartphones will outsell loss-making Symbian smartphones,? he said.

?Lumia 900 would be the hero device at the top-end and Lumia 610 at the lower-end in driving encouraging volumes for the Finnish vendor for near to mid-term.?