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Nokia’s Slump Deepens, but Maybe There’s Hope

We shouldn't be too surprised by the earnings numbers coming out of {complink 3847|Nokia Corp.} today. They've been on a downward trajectory for a while, and reports earlier in the week about steep US price cuts on its new flagship seemed to signal news of a rough spell.

And, that's what the Finnish company delivered: Another losing quarter.

The company's net loss for the three months ended June 30 widened to $1.72 billion (€1.4 billion) from €368 million in the comparable year-ago quarter. Net sales in the second quarter reached €7.5 billion, up from the first quarter's €7.4 billion. But, still, that's a big drop from last year's second quarter sales of almost €9.3 billion.

The company's new Lumia Windows-powered phones won some sales traction, doubling from the previous quarter's small starting base. However, the uptick was not enough to put a dent in the lucrative smartphone market clearly being dominated by Apple, Samsung, and Android-based devices.

Evidence of that started to creep out a few days ago when various news outlets reported that Nokia slashed the price of its Lumia 900 phone by half in the important US market. The price cut comes only a few months after it launched there. The device was originally priced at $99 with a two-year AT&T contract, but the $49.99 pricing was introduced early Sunday, according to the Wall Street Journal report.

Nokia's CEO Stephen Elop acknowledged the bumpy road migrating to Windows and tried to focus on the good things in the pipeline:

    Nokia is taking action to manage through this transition period. While Q2 was a difficult quarter, Nokia employees are demonstrating their determination to strengthen our competitiveness, improve our operating model and carefully manage our financial resources.

    We shipped four million Lumia Smartphones in Q2, and we plan to provide updates to current Lumia products over time, well beyond the launch of Windows Phone 8. We believe the Windows Phone 8 launch will be an important catalyst for Lumia. During the quarter, we demonstrated stability in our feature phone business, and enhanced our competitiveness with the introduction of our first full touch Asha devices.

    We continued to strengthen our patent portfolio and filed more patents in the first half of 2012 than any previous six-month period since 2007. And, we are encouraged that Nokia Siemens Networks returned to underlying operating profitability through strong execution of its focused strategy.

    We are executing with urgency on our restructuring program. We are disposing of non-core assets like Vertu. We are taking the necessary steps to restructure the operations of the company, which included the announcement of a new program on June 14. Faster than anticipated, we have already negotiated the closure of the Ulm, Germany R&D site, and the negotiations about the planned closure of our factory in Salo, Finland are proceeding in a collaborative spirit.

Maybe somewhere in all this rah-rah noise there are glimmers of hope that point to Nokia's long-awaited recovery. It certainly sounds promising. The big questions are: How much more survival block-and-tackling will they still have to do, and will they ever really gain a smartphone edge anytime soon?

9 comments on “Nokia’s Slump Deepens, but Maybe There’s Hope

  1. prabhakar_deosthali
    July 24, 2012

    What Nokia seems to be currently doing is only a fire fighting exercise. The real fight back to come on the top again seems to still lacking.

    And with overall European slowdown the possibility of a full revival of Nokia seems something impossible

  2. Ariella
    July 24, 2012

    @PD Yes, and given Bolaji's account of the stock's downgrade, the outlook for Nokia looks rather gloomy now. 

  3. Houngbo_Hospice
    July 24, 2012

    @Ariella,

    That was bad news, for sure. But we can't rely on that stock's downgrade to conclude about the company's downfall. Can we?  

  4. Anna Young
    July 24, 2012

    @HH, a negative stock downgrade of a company may not seem an end itself. However, may affect a company's marketable and financial standing for recovery. For Nokia is certainly a concern in the short term.

  5. bolaji ojo
    July 25, 2012

    Nokia's stock was not downgraded. The downgrade applies to its bonds or debts all of which are publicly traded too. Analysts have in the past downgraded its stock but that is the least of the company's problems since it is not seeking to sell shares now. However, the cost of raising money through the equity market may be higher.

  6. Houngbo_Hospice
    July 25, 2012

    @Bolaji,

    “Nokia's stock was not downgraded.  However, the cost of raising money through the equity market may be higher.”

    Thanks for elaborating on that. Lower credit ratings may be bad for the borrowing costs, but Nokia says Moody's rating downgrade is a non-issue, because the company's net cash is actually higher than a year ago. Why hasn't Moody's taken that into account?

  7. itguyphil
    July 25, 2012

    Nothing's impossible if there is a good strategy in place and even better execution. It may be an uphill battle but they still have potential. They are just unfortunate that the brand has been out of sight & mind for so long.

  8. Jennifer Baljko
    July 27, 2012

    Prabhakar – I agree, I think Nokia is playing a catch-up game, and given how the market and brand loyalty has already taken shape, it will be hard for them to muscle significant smartphone market share in mature markets. If I was calling the shots, I'd start looking at how Nokia can cost-effectively transition its global feature phone user base into smarthone users. Nokia phones are incredibly widespread in the developing world. If the Nokia can develop smartphones at the right price point for the emerging markets, they may be able to move away from fighting fires in the mature markets and secure a better competitive position elsewhere in the world.

  9. Jennifer Baljko
    July 27, 2012

    I agree with Bolaji and Anna on the downgrade…it's not the most applicabe measure of how well or how badly the company is doing. It reflects analysts' and Wall St's  sentiment about how they think the company is doing, but at the day this has to be weighed against a host of other figures.

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