Nokia Profits Up, But Its Problems Are Far From Over

Nokia has released its Q4 FY 2012 earnings, and surprisingly the numbers are printed in black ink. Good sales performance of the latest Microsoft Windows-based phones has helped the company post a quarterly profit.

However, shipments declined 24% year on year to 86.3 million units, smartphone units declined 66% year on year to 6.6 million units, of which 4.4 million were Windows Phone devices. Feature phones declined 15% year on year to 79.6 million units.

The entire Nokia Group made 8.04 billion Euros (£6.76 billion) in net sales over the period, while operating profit has been revealed to be 439 million Euros (£369 million). It marks a significant improvement over the Q3 results, which saw the company lose money 576 million Euros (£484 million). With Windows Phones finally outselling Symbian and Meego models (by 2:1), a new era at Nokia seems to have finally begun.

Commenting on Nokia’s earnings announcement, Victor Basta, managing director of Magister Advisors, M&A advisors to the technology industry, said: “Nokia’s results are in the short term encouraging, but in the longer term irrelevant. The declining performance is a dramatic illustration of the central importance of software in the mobile industry. Margins and prices for devices are eroding for all players.

“Unfortunately for Nokia the potential software value is now Microsoft’s, which has gained a key channel for Windows into the mobile channel without having to buy Nokia and its problems. Nokia’s one remaining chance at global importance lies in emerging markets. While price competition is intense there, Nokia has a strong brand name and distribution into key developing markets. They should consider splitting their emerging markets business into a separate company, which could apply greater focus on this major opportunity.

“RIM’s next results are likely to underscore the same trend. RIM is at heart a hardware company, and one without a strong software partner. RIM’s quarterly developments and new launches are, again, short term encouraging but irrelevant in the longer term. Without a software-centred strategy, neither RIM nor Nokia can have enduring value.”

“Nokia has been doing a remarkable job in the feature phones segment and the results are here”, said Francisco Jeronimo, Research Manager European Mobile Devices, IDC. “Nokia continues to be the market leader in the segment that still represents over 50% of total mobile shipments in the world. Nokia’s performance was better than the total segment performance expected for 4Q12. Although this is not enough to drive a strong growth in the gross margin.

“Nokia’s Achilles heel continues to be the smartphones segment. Symbian shipments show that the OS is dead for smartphones and Windows Phone volumes are still extremely low. This will give Nokia less than 3% market share in the smartphone segment, from 28% two years ago. The company has gone through a tough restructuring in the past two years, with a strong impact on sales. Although the time to click the “sales reset button” has come.

“The fourth quarter 2012 was the bottom line for Nokia. Significant results need to be delivered this year starting right from the first quarter. Nokia is losing a huge opportunity by not translating its almost exclusive lead on the Windows Phone market into sales.

“The company impressed with very innovative Lumia devices, the Windows Phone ecosystem is growing, Nokia services are differentiated, consumers are giving excellent feedback on the user experience, the investment that Microsoft is making promoting the platform is massive, and the support from operators is growing. And competition from other vendors on Windows Phones is negligible.

“I am still positive about Nokia’s future. In Western Europe the 4Q12 results are promising. In some countries its volumes were above expectations. Several channels reported a shortage of devices to meet demand. Mobile operators are committed to supporting the Windows Phone OS and investing to promote Nokia devices”, concluded Jeronimo.

From 2013 Nokia has only two options: either significantly grow sales or change its strategy, radically.

Christian Harris is editor and publisher of BCW. Christian has over 20 years' publishing experience and in that time has contributed to most major IT magazines and Web sites in the UK. He launched BCW in 2009 as he felt there was a need for honest and personal commentary on a wide range of business computing issues. Christian has a BA (Hons) in Publishing from the London College of Communication.