Nokia announced its anticipated bloody quarterly results, with a sharp fall in sales leading to a loss of EUR1.4 billion. Stephen Elop, the company’s CEO, put a brave face on the financials, noting that “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."
With all eyes on the company’s smartphone business, it said that during the three months (April to June) volumes of its Windows Phone-powered Lumia range increased to 4 million units. However, it also noted that on a sequential basis, the average selling price (ASP) of the Lumia range fell to EUR186 from EUR220.
And, somewhat surprisingly, Nokia noted that during the same period ASPs for its legacy Symbian device range increased – presumably as a result of the launch of the 808 PureView using this platform.
With the company having shipped 10.2 million smartphones during the quarter, this means that Symbian and MeeGo devices still make up more than 60 percent of these sales.
Addressing criticism that Nokia’s current line of Windows Phone 7.5 products will be abandoned after the launch of Windows Phone 8 – earlier devices cannot be upgraded to the new platform – Elop said that “we plan to provide updates to current Lumia products over time, well beyond the launch of Windows Phone 8”. He also said that the company believes the next-generation Microsoft platform “will be an important catalyst for Lumia”.
For the period, the company reported a loss of EUR1.4 billion, compared with a prior-year loss of EUR368 million, on sales of EUR7.5 billion, down from EUR9.3 billion. On an operating level, the loss was EUR826 million, compared with a loss of EUR487 million in Q2 2011.
In its Smart Devices unit, net sales fell by 34 percent to EUR1.5 billion, as volumes fell by 39 percent to 10.2 million units. More encouragingly, average selling prices increased both year-on-year (up 7 percent) and quarter-on-quarter (up 6 percent) to EUR151, aided by stabilisation in the Symbian portfolio.
Elop noted that Nokia’s mass-market Mobile Phones unit “demonstrated stability,” with a 2 percent year-on-year increase in shipment volumes to 73.5 million. However, sales for this business declined by 11 percent year-on-year to EUR2.3 billion year-on-year, with average selling prices dropping by 14 percent (6 percent over the prior quarter) to EUR31.
It was noted that volumes of its higher-priced feature phones were impacted by “competition from more affordable smartphones and from competitors with broader portfolios of feature phones with more smartphone-like experiences, such as full touch devices.” The second quarter saw Nokia launching its first full touch devices in its Asha feature-phone line.
As a whole, the Devices & Services business saw an operating loss of EUR474 million, compared with a prior year loss of EUR216 million, on revenue of EUR4 billion, down from EUR5.5 billion. Total volumes fell by 5 percent to 83.7 million units.
Elop said that for the Location & Commerce division, “our business with auto-industry customers continued to grow, and we made good progress establishing our location-based platform with businesses like Yahoo, Flickr and Bing”. This unit reported an operating loss of EUR95 million, compared with EUR104 million in the prior year, on sales of EUR283 million, up 4 percent.
The Nokia Siemens Networks (NSN) infrastructure joint venture saw an operating loss of EUR227 million, compared with EUR111 million in the prior year, on sales of EUR3.3 billion, down from EUR3.6 billion. Elop said that this business “returned to underlying operating profitability through strong execution of its focused strategy.”
Nokia said that on a year-on-year basis, NSN experienced a decline in sales of infrastructure equipment as well as slower operator investment environment in certain markets, including Europe. This was partially offset by a slight increase in services sales.
Nokia’s focus on North America made this the only region to record Devices & Services sales growth, increasing by 45 percent to EUR128 million. This is still by far Nokia’s smallest market – Europe is currently the biggest, where sales fell 34 percent to EUR1.1 billion, followed by Asia Pacific, where sales fell 13 percent to EUR948 million.
Interestingly, in terms of shipment volumes, North America saw a 60 percent drop to 0.6 million year-on-year, remaining flat quarter-on-quarter – indicating that its Lumia devices are failing to ignite the market. Asia Pacific was the only region to see shipment growth, increasing by 17 percent to 28.6 million – making it the largest market in volume terms.
Looking forward, Nokia said it expects its non-IFRS Devices & Services operating margin in Q3 will be “similar to the second quarter 2012 level of negative 9.1 percent, plus or minus four percentage points.” It said it expects the period to be “challenging” for its Smart Devices unit, as it continues its product transitions.