The final Nokia Q1 2012 results are out. And it’s all bad news. There wasn’t a thinnest silver lining in earnings release and a follow-up conference call.
Just as I told you yesterday – at this point, there is no real difference between Nokia’s Symbian smart phones and low-end S40 feature phones. They both are being crushed by Android.
To recap the Q1 highlights:
- Nokia reduced their smartphone shipment number even below the last week’s estimates. From 12 million to 11.9 million. I wonder whether this reduction was for Symbian devices (which would be kind of irrelevant) or new Lumias ( which will be pretty bad) . In Q4 Nokia shipped 19.6M smartphones, a year ago – 24.2 million
- Mobile phone shipments declined to 70.8 from 84.3 million a year ago, and 93.9 million in Q4 2011
- Nokia’s operating loss in Q1 was a staggering 1.340 billion Euro
- Nokia’s actual cash declined by 709 million Euro in the last 3 months. That includes a positive EUR 410M net cash contribution by Nokia Siemens Networks, and EUR 189M platform support payment from Microsoft. Which means that Nokia’s Devices&Services division burned through 1.309 Euro of cash in just 3 months. A few more quarters like that – and the end of Nokia may come way sooner than expected.
Let’s now dig into details
Nokia Mobile Phones
The worst news by far comes from Nokia Mobile Phones division.
For the first time ever, Nokia admitted that cheap Android smartphones are starting to eat into S40 feature phone volumes. Which is extremely bad news for Finnish handset maker.
They have acknowledged before that Android was negatively impacting the prices of it’s more expensive S40 handsets. But until now, Nokia was able to stem the Android onslaught by reducing prices for its feature phones, and still managing to make an OK profit. Through much of 2011, Nokia’s phone division was the only one making money. But with $100-150 Androids now starting to replace S40 Ashas – Nokia has nowhere to hide anymore, and very few ways to respond.
In the first half of last year – when Nokia’s low end volumes were threatened by non smartphone Chinese and Indian competitors, Nokia was able to react swiftly and recover most of the loses by Q4. But that was then. The reason for Nokia 2011 cheap phone troubles was the rapid rise of dual SIM devices. Nokia reacted swiftly by introducing and heavily pushing series of them, and it worked. By the end of 2011 most of the losses in the dumbphone division seemed to be turning around.
Nokia is blaming the lack of cheap full touch devices for its troubles this year, and promises that it’ll have the answer real soon, again. But now, that it has to compete directly against Android, I have strong doubts that souped-up full touch S40 device like Nokia Asha 306 will be able to do so.
And Nokia’s mobile phone unit is on the verge of plunging into losses, just as its smart device division did last year. The margins already dropped by almost two thirds in 3 months. From 13.5% in December to 4.6% at the end of March. Any further erosion – and big losses are imminent.
My only hope here is – the new Meltemi/Qt platform, Nokia is developing to replace the aging S40. Nokia clearly thinks it’s a future for the low-end, and is significantly increasing phone R&D investments, even as sales and volumes decline.
Nokia management better have a very good reason for that, and see a way for Meltemi to succeed. Because right now, Nokia is barely able to sustain the losses in one of its mobile device divisions, and does not seem strong enough to fight two-pronged war – both at the high-end and low-end of smartphone disruption. If their Mobile Phone unit turns into a cash bleeding resource drain the Smart Device division has become, before Nokia Windows Phones take off, it is game over within a year.
So in Stephen Elop’s place, right about now , I would be taking another hard look at Meltemi, and re-evaluating its chances against Android 4. And Nokia’s ability to launch and support a new low-end smartphone platform. If the answer is “no”, or even “I don’t know” – it may be time to admit the failure of “Connecting the next billion” part of the strategy, and start looking for a buyer for Nokia phone unit ASAP. Before it becomes a money losing machine nobody wants to touch. The next billion will happily connect via Android.
And sometimes I wonder whether Stephen Elop has a clue:
At the same time, the lower price tiers of our industry are undergoing a structural change, and traditional feature phones are challenged by full touch devices. As a result we are taking deliberate measures to continue to renew our Series 40 platform…
… said Elop in the earnings press release.
Hello?!!! Full touch devices?!!! If it was about full touch – Samsung Star and Corby would have killed S40 years ago. Instead, Galaxy Y/M/Ace II are doing the killing. They are not “full touch devices” – they are full fledged Android smartphones. And your answer is to pretty up S40??? That’s what you call a sense of urgency?
Nokia Smart Devices
After the profit warning last week, it became painfully clear that Symbian sales are collapsing. For all intents and purposes, Symbian as a smartphone platform for Nokia – is dead. If it was a smartphone platform at all.
Looking at the ease with which Android demolished Symbian at every price level, and how similarly and easy Google mobile OS is now taking over S40 turf – I’m pretty sure that from business/design and user point of view, ideologically Symbian is much closer to a feature phone OS then to Android or iOS.
No matter where you stand on Symbian smartness debate, one thing is obvious – Nokia is now a start-up in the current smartphone business, with less than 1% of market share and a new, unproven OS.
It is also becoming clear that current crop of Windows 7.5 Lumia phones are not enough to turn Nokia around. 2 million devices sold in 3 months – is way too low to make a difference. And the growth just isn’t there. Nokia wasn’t even able to tell us today, that they have shipped 1 million Lumias in April. With AT&T and China and a bunch of other markets online. At this rate, Nokia is going to sell only 3 to 4 million Windows Phones in Q2, and get to 5-7 million in Q3. Which is not remotely enough to even start replacing Symbian losses. Even forgetting that Nokia is already selling Lumias at cost, or even at a loss.
But while the huge losses in the Nokia smartphone division are really worrisome, and anemic growth is disappointing – there is still some hope.
Nokia has told us in October that they had very little impact on Widows Phone Mango development. And that their true capabilities to shape WP will become apparent only with the release of Apollo. Microsoft also seems be playing a holding action with current versions of mobile OS, preparing for an all out assault with Windows 8 PCs, tablets and phones.
But this Windows Phone 8 Hail Mary pass better work. Because unless the next generation Nokia Windows Phones are able to stand up to Android 4.x in mid to high-end, and even nibble at the coattails of iPhone 5 that will come out in Q4, there will be no independent company called Nokia by this time next year.
The way I see it – there are 3 equally plausible scenarios for Nokia today:
- Both – Windows Phone and “Connecting the Next Billion” – strategies are successful. Nokia remains a strong #3 player in smartphones, working through 2013/2014 to catch with Apple and Samsung with high volume Meltemi devices, and moderately profitable Windows Phones.
- Meltemi fails, Windows Phone succeeds. Nokia closes or sells off its mobile phone unit, and remains strong and moderately profitable player in smartphones, slugging it out with HTC, Huawei and ZTE for the place among top 5 smartphone vendors. It may even consider joining Android camp at that point.
- Windows Phone 8 flops, and is not able to significantly best WP Mango. It is game over. Because at this point – Nokia has neither time, nor enough cash to do anything else. The company is broken up and sold off – Lumia division becomes part of Microsoft, and Mobile Phone unit goes to either Huawei or ZTE.
Let’s see what happens. We will probably get all the answers in the next 9 months.
If you liked the post, you might find these interesting too:
- Fighting cheap Androids. Seppo Aaltonen, Nokia phone Strategy Lead: ~9 million apps downloaded to S40 each day #MWC13
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- Nokia’s Q3 results: 2.9 million Windows Phones sold, 3.4 million Symbian devices, still losing money
- Nokia plans to sell more than 500 million phones in 2010
- Nokia stops smartphone sales drop in Q3, but it’s now No.3 behind Samsung and Apple