Nokia Reports Loss, Desperately Needs Hit Smartphone - InformationWeek

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10/18/2012
08:31 AM
Eric Zeman
Eric Zeman
Commentary
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Nokia Reports Loss, Desperately Needs Hit Smartphone

Nokia's disastrous third quarter highlights just how badly the company needs Windows Phone 8 and the Lumia 920 to reach the market ASAP.

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It's hard to believe that Nokia's third-quarter results, which show the company lost $1.27 billion on sales of $9.44 billion, were better than investors expected. The company had warned that the results wouldn't be pretty, but it actually managed to lose less than it did during the second quarter. Its cash assets dropped from $5.5 billion $4.7 billion.

Nokia sold a total of 6.4 million smartphones during the third quarter, which is a drop of 38% when compared to the 10.2 million smartphones it sold during the second quarter. Of those 6.3 million smartphones, fewer than half were Lumia Windows Phones. Nokia sold 2.9 million Lumias during the third quarter. In the U.S., Lumia sales dropped from 600,000 in the second quarter to just 300,000 in the third quarter--a 50% decline.

What's unnerving about these numbers is that they reveal Nokia's outgoing Symbian platform is still outselling Lumia smartphones around the world. That's been the case all year long, but many had hoped the Lumia line of devices would have surpassed Symbian sales by now.

[ See 8 Must-Haves For Windows Phone 8. ]

Looking at its total device sales, Nokia shipped 82.9 million cellphones around the world during the third quarter, which is just a 1% dip compared to the 83.7 million total devices it shipped in the second quarter. The balance of those devices comes from Nokia's Asha and Series 40 platforms, which combined accounted for 76.7 million devices. These are the low-cost devices that Nokia sells in emerging markets. Nokia CEO Stephen Elop said he was pleased with the company's low-end device sales. Too bad the margins on entry level devices are slimmer than the hair on a gnat's hind quarters.

The average selling price (ASP) of Nokia's smartphones during the quarter was about $210. The average price of Nokia's entry-level devices was $31.

Nokia said that the ASP of its smartphones dropped during the third quarter thanks to fewer sales of its high-end Lumia 800 and 900 and more sales of discounted Lumia 610 and 710 devices. The ASP of entry-level devices was flat quarter-over-quarter.

Nokia partially shot itself in the foot in June when Microsoft first gave the world a peek at Windows Phone 8. Nokia said at the time that none of its first batch of Lumia devices would be upgradable to Windows Phone 8. Instead, the 610, 710, 800, and 900 will be updated to Windows Phone 7.8. With no upgrade path to WP8, it's no surprise that sales of Nokia's high-end devices nosedived during the third quarter.

This is where the Lumia 920, and 820/810 come into play. Nokia announced the devices--sans pricing and availability--in early September. The phones aren't expected to hit U.S. carriers until early November. By announcing the new Lumia series so far in advance of their availability, it further hobbled sales of Nokia's existing lineup.

Nokia can't afford any more failures. The Lumia 920 and 820/810 received a lukewarm response at introduction by investors, who were worried that they aren't different/compelling enough to win over iPhone and Android users. Nokia needs to do more than retain its existing customer base, it needs to steal new customers back from its competitors.

It doesn't help that there's a massive unknown still at play: Windows Phone 8. Microsoft has revealed only a few details about its next-generation smartphone platform, which shares its base code with Windows 8. Microsoft is scheduled to fully unveil the new platform at an event in San Francisco on October 29. Sales of the Lumia 920 are expected to follow soon thereafter.

For Nokia, Windows Phone 8 and the Lumia 920 can't come quickly enough.

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