Mobile // Mobile Devices
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7/21/2011
02:14 PM
Eric Zeman
Eric Zeman
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Nokia Loses To iPhone, Smartphone Sales Down 31%

After calling the iPhone a toy, Nokia falls behind Apple in smartphone sales and reports weak second quarter earnings.

During the second quarter of 2011, Nokia sold 16.7 million smartphones. That's a 31% drop from the first quarter of the year, when it sold 24.2 million, and 3.64 million fewer smartphones than Apple sold in its most recent quarterly report. Apple is now officially a larger worldwide supplier of smartphones than Nokia. Oh, how that must sting Nokia, which derided the first iPhone as a toy.

Nokia still sells more phones in total, of course, and shipped a massive 88.5 million devices during the second quarter. This number includes smartphones and 71.8 million feature phones. Total device sales are down 18% compared to the previous quarter, and feature phone sales are down 15% compared to the previous quarter. In the year-ago quarter, Nokia sold a total of 111 million phones, meaning this quarter's 88.5 million is down 20% from Q2 2010.

The average selling point of its devices has dropped, too, as Nokia has slashed prices to increase demand. Its smartphones are selling for an average of $142 (down from $146 in Q1), its feature phones are selling for an average of $36 (down from $40 in Q1), and its overall average sales price for Q2 was $62 (down from $65 in Q1).

Lower sales volumes and lower sales prices wreaked havoc on Nokia's financials. Net sales for its device unit dropped from $7.1 billion to $5.47 billion, a decline of 23%. Overall net sales for the entire company dipped from $10.4 billion to $9.28 billion, a decline of 11%.

"The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011," said Nokia CEO Stephen Elop in a statement. "However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business. Most importantly, we are making better-than-expected progress toward our strategic goals."

Those goals included inventory reductions in China and Europe during the first quarter of the year, faster and more flexible device pricing, a shift from its sales and marketing focus to a more retail focused approach, and changes in its sales management practices.

"During this time of transition, we expect competitive pressures to continue," Elop explained. "However, we have a clear strategy to address the concerns about our product competitiveness."

The progress cited by Nokia includes forward movement in both its smartphone and feature phone divisions. Elop said those who have seen its early Windows Phone 7 device builds are "very optimistic." He also said that Nokia plans a number of product launches for later this year, though he didn't provide specifics.

Nokia also has seen some success with phones that include support for dual SIM cards (this allows one phone to support two separate phone numbers). Dual SIM devices are typically sold in developing countries, however, which means they have low sales points and thinner margins than smartphones do.

"This shift into the execution of our new strategy also has allowed us to identify additional opportunities for operational improvement," he said. "We are accelerating our plans for expense reductions." In a small barb aimed at Apple, Elop mentioned, "It was also validated during Q2 that Nokia understands how to take advantage of our strong intellectual property portfolio. We are well positioned to defend against intellectual property claims and to ensure that other industry participants are properly licensed." Nokia recently won a patent-related spat against Apple.

These numbers clearly tell us that Nokia is in the middle of a nasty transition. Customers are fleeing Nokia devices in bigger numbers than the firm expected as it moves from Symbian to Windows Phone. Where are those customers going? Obviously to the iPhone and Android smartphones. Apple's last quarter was huge, with more than 20 million iPhones sold. Google is now selling Android devices at the rate of 550,000 per day (3.85 million per week, 46 million per quarter).

Nokia's first Windows Phone 7 device, expected by the end of the year, can't come quickly enough.

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