Nokia’s latest results show that its mass market devices business is suffering, causing concern for the vendor as it struggles to battle low-cost device manufacturers as well as full portfolio vendors such as Samsung.
While much of the focus has been on the company’s efforts to restructure its troubled smartphone division – and shipments of 5.6 million Lumia devices in a quarter is still hardly impressive, even if momentum is growing – its Mobile Phones unit has provided it with a diversified product base and steady revenue stream.
Indeed, over the last two years this business has had a healthy gross margin and made a positive contribution to Nokia, during a time in which the Smart Device unit was in a less healthy state.
Mobile Phones is the home of Nokia’s Asha device line, which is its rival to entry-level Android smartphones – the company has even gone as far as using the moniker “smartphone” to describe it.
But with sales of 5 million for these products in the first quarter of 2013, down 46 per cent quarter-on-quarter, the company is seeing the signs of “competitive industry dynamics as well as lower seasonal demand”.
In this space, Nokia is facing competition from several fronts. Not only does it have to fight low-cost Android device makers such as Huawei and ZTE, but also a number of even cheaper local rivals from India and China. And some of its other rivals also have particularly aggressive pricing strategies.
The Android-rivalling Asha is not the only casualty. Nokia said it had seen falling volumes for its “lower-priced devices that we sell to our customers for below EUR30”.
In its conference call, the vendor said it started the first quarter with “higher channel inventory in mobile phones than would have been optimal”. The efforts taken to balance this impacted volumes.
It also said that, moving forward, it is “focused on ensuring price competitiveness” of key products in the line, which is likely to mean further price cuts.
In this unit, average selling prices of EUR28 were down from EUR31 in the prior sequential quarter which, coupled with falling volumes, means that revenue is pressured.
Stephen Elop, CEO of Nokia, said that Nokia is in the process of refreshing its Mobile Phones portfolio, with several devices, including the low-cost 105, unveiled at Mobile World Congress earlier this year.
He also said that “we’ve also signalled that in the very near term you should expect to see a freshening in the Asha product line”, with the company being “roughly nine months” into shipment of its touch-screen handsets in this line.