Nokia Smartphone Sales Dip Ahead Of Microsoft Buyout

Nokia's latest earnings report could signal more challenges ahead for the Windows Phone platform.
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Microsoft will close its acquisition of Nokia's handset business soon, which means the company is probably not too pleased with the news coming out of Espoo today. Nokia reported fourth-quarter and full-year earnings, and the results are mixed. The company saw a drop in Lumia smartphone sales for the period and a corresponding drop in net income.

Nokia managed to sell 30 million Lumia-branded smartphones during 2013 -- more than double the 13.3 million it sold in 2012. That's the good news. It sold 8.2 million Lumia devices in the fourth quarter of 2013, a dip compared to the 8.8 million sold during the third quarter of 2013. Most companies enjoy a sales boost, not a drop, during the holiday quarter. Further, Nokia released the Lumia 1520 and 1320 handsets during the fourth quarter. The 1520, Nokia's first phablet, is a high-end device and was expected to sell briskly. Nokia didn't provide a breakdown of its individual device sales. Nokia also sells Asha-branded devices in emerging markets, and the company continues to wind down sales of Symbian-based smartphones.

Nokia's device business reported a decline in fourth-quarter sales to $3.56 billion, a 29% drop over the year and 4.5% lower than the previous quarter. The device business raked in $14.62 billion for the entire year, also a 29% drop over the $20.7 billion it earned in 2012. (Nokia now separates its device business results from those of the larger organization.)

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The sequential drop in unit shipments and net income is troubling. Microsoft's Windows Phone platform has been treading water for several years now. It has made small gains against Android and iOS, but still lags far behind. Nokia alone represents some 90% of the Windows Phone market, and fewer buyers choosing Lumia smartphones during the fourth quarter could signal flagging interest in the platform. Nokia blamed the sales drop on "strong momentum of competing smartphone platforms" and continued difficulties in transitioning away from Symbian. In other words, more people bought iPhones and Galaxies than bought Lumias. Apple and Samsung move tens of millions of smartphones each quarter.

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Microsoft announced its intent to buy Nokia's handset business in September. The company is paying $7.2 billion, and the deal is expected to close later this quarter. The big question is: What exactly is Microsoft planning to do with Nokia? Microsoft is clearly transitioning away from a software business to being a platform-and-hardware business. It already sells its own Surface tablets, and once the Nokia acquisition is complete, it will sell its own Windows Phones, too. At this point, however, it's hard to paint a clear picture of Windows Phone's future.

Microsoft is attempting to build momentum for its Build developer conference, scheduled for early April, at which the company is expected to preview the next version of Windows Phone. By then, Nokia should be under Microsoft's ownership. Microsoft will need to show that the platform and the devices will move in a positive direction.

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