While Nokia’s Q3 results offer some positives for its struggling Devices & Services unit – which is set to be sold to Microsoft – there are still some significant flies in the ointment for the former global handset number one.
The vendor highlighted that sales of its Lumia smartphone line has increased to 8.8 million during the quarter, up from 7.4 million in the prior sequential period and from total smartphone sales of 6.3 million in Q3 2012 (of which just 2.9 million were Lumia units).
However, the company’s average selling price for smartphones has decreased to €143 in the third quarter from €157 in the prior sequential quarter and from €155 in Q3 2012.
This indicates that while it is able to find an increasing number of buyers for Lumia smartphones (although 8.8 million is not an awe-inspiring number), it is not able to assert itself in the premium space, which is dominated by Apple and Samsung.
While the breadth of its portfolio will enable Nokia to drive Windows Phone momentum, making the proposition more alluring to ecosystem partners such as developers, unless it is able to generate traction at the high-end, its profit from smartphones will remain pressured.
And while Nokia may be able to drive Windows Phone scale in emerging markets with low-cost devices, unless it is able to increase its visibility in developed markets – where a large number of developers, analysts, journalists and bloggers live – the company is likely to find its mindshare unduly lagging.
Microsoft has previously said that Devices & Services will achieve “operating income breakeven when Smart Device units exceed ~50 million”. And while this target is still some way off, it is also dependent on the margins it can achieve, and weakness in the premium smartphone market certainly does not help its cause.
There is also cause for concern in Nokia’s mass-market devices unit. Q3 volumes of 55.8 million were down 27 per cent from 76.6 million in the prior-year period, but marked a slight recovery (up 4 per cent) from 53.7 million in the earlier sequential period.
And while its ASP for mass-market devices has increased to €27 from €26 in the prior quarter, this still represents a decline from €31 in Q3 2012.
The company said that the lower ASP year-on-year was due to “a higher proportion of sales of lower priced devices as well as general price erosion and our pricing actions”.
What will be interesting to see is how Microsoft’s attitude to this unit changes once it becomes its new owner. In its acquisition presentation, Microsoft said that Mobile Phones “provides entry into key growth markets” – but not much else, as its attention was focused on the smart device sector.
Mobile Phones helps give Nokia the scale to keep it at the top table when negotiating with suppliers – which its smartphone sales alone are not enough to achieve, and by service markets other vendors ignore also enables it to keep a strong position among global handset venders by volume (if not volume).
But how much of an appetite Microsoft has to continue in this market if the unit is not profitable in the medium term is not clear.