Nokia Q3 results: a disaster with no hope in sight. And admission Lumia 920/820 Windows Phone 8 won’t help in Q4
Nokia announced their results for the July – September quarter. And they are disaster.
So much for the hope of positive surprise. It seems my expectations for Nokia weren’t low enough after all.
The only bright thing thing in a quarterly report – was Nokia’s Mobile Phones division, which managed to eke a small 3% growth compared to Q2. And did it profitably. What’s more impressive – they’ve sold 6.5 million of newly launched full touch Asha phones. A whole bunch of them – in Europe. And kept mobile phone average selling prices more or less at the same 31 Euro level for a year now. As holiday shopping season approaches, we can expect further growth here.
Nokia seems to be holding its own against onslaught of cheap Androids in low end, for now. Will it last? It’s an open question. Nokia had a very similar round of good news in Mobile Phones unit in the second half of last year. Then, in early 2012, quality Android phones got down to then current Asha price levels, and all the gains were wiped away. Will it happen next year, when quality Droids go another step down the pricing level? Or is Stephen Elop on to something, when he says that power and data frugal design that’s in full touch Asha’s DNA, will help it keep its own against resource guzzling Android amongst very cost conscious consumers? I don’t know, maybe. We’ll just have to wait and see.
These were the good news. In smartphones, though, it’s bad, bad, bad and getting worse. With no hope in sight.
Bad #1. Symbian sales have now entered terminal decline. Seems I was right to call Symbian dead, for real this time, back in April. But I still didn’t expect for it to expire this fast. Symbian sales have now been dropping by 40% or more every three months, for the third quarter in a row. In Q3 Nokia shipped 3.4 million Symbian devices. At this rate of decline they will ship less than 2 million in Q4.
Bad #2. Windows Phone sales aren’t helping much. Given the reduced marketing budgets and Microsoft’s announcement in June that current Lumias won’t be upgradable to WP8, it is not a big surprise that Nokia Windows Phone volumes stopped growing and declined this quarter. Especially when company itself decided to add to the misery with that mad September 5th Lumia 920 announcement, when real shipping products were months away.
Stephen Elop calls the September 5th announcement “A deliberate action to become part of conversation before holiday season starts”. I hope “being in a conversation” was worth all the lost sales. I hope there was a person here and there, who decided not to buy iPhone 5 or Galaxy S3 and wait, just because he heard about Lumia 920. But I still call it a bunch of malarkey.
And a drop of 27% in 3 months? In a growing market? With Nokia engaging in some serious price dumping along the way? And with low end Lumia 610 available around the world? Even with Microsoft Osborning Windows Phone 7.5, one could have reasonably expected Nokia to keep the sales levels it got to a quarter before.
But maybe Nokia simply gave up on first generation of Lumias last spring, as depressing Q1 and then big AT&T Lumia 900 launch numbers came in? And just decided to somehow coast along until Windows Phone 8 comes out?
That would explain reduced marketing budgets for Q3. It would also explain why Nokia announced Lumia 920 when it did. How else do you create a plausible excuse for a drop in sales you expect anyway? That “deliberate action” part in Elop’s explanation of Sept 5th does actually sound true. Just not the rest of it.
Bad #3. Lumia prices. Let’s talk a bit about that price dumping Nokia was doing this quarter. Lumia average selling price went down from 186 Euros in Q2 to 160 Euros in Q3. Part of that, most likely, was increasing prevalence of cheapo Lumia 610 in Nokia Windows Phone mix. But even bigger part were price cuts to NWP portfolio across the board. Nokia’s sales forecast team royally screwed up. They have millions of Lumias sitting in Nokia and partner warehouses, and the only way to move them is to sell them at a loss.
In a little over 10 months since launch, Nokia Lumia ASP went down from 220 to 160 Euro. A 60 Euro, 27% drop. With newest flagship – Lumia 900 – launched only 5 months ago. Things got so bad in Q3, Nokia itself admits that the margins on Lumia handsets are now worse than margins on Symbian devices in Q3, 2011.
Stop for a minute and think about that. Nokia now earns less (or loses more) on every Lumia device sold, than they did with dead-end Symbian a year ago. While in the midst of serious price dumping then, too.
Wasn’t the whole point of Windows Phone strategy change to move away from soon to be money losing Symbian, to a more lucrative next generation smartphones? And now Nokia is telling us that they can not earn more from Lumia than they did from Symbian 6 months after it was end-of-lifed?. If that’s not a damning evidence of strategy failure, I don’t know what is.
Oh, right. Windows Phone 7.5 wasn’t ready for prime time. It is hard to break through iPhone and Android dominance. There might have been some bumps along the road but Nokia is executing on a new strategy. Sales may have come in low, but what else could you expect? Nokia grew smartphones volumes that quarter. Nokia burned through less cash this quarter. Nokia doubled Lumia sales in Q2. Nokia is non-IFRS profitable in Q3… These all are valid sounding excuses.
But I am tired of hearing excuses quarter after quarter after quarter. I want to see some positive trend, not a new set of talking points used to put a PR lipstick of positive spin on a turd of actual results.
And now let’s get to the best one of those talking points. “Just wait for Windows Phone 8, Lumia 920, and you’ll see. Everything before was a part of the big plan. You just way and see how things will magically turn around real soon”.
Things are is getting worse as Nokia admits low sales expectations for new Lumias in Q4. If you’ve been expecting a big boost from Lumia 920/820 and the next generation Windows Phone launch – you are in for a big disappointment.
Nokia already admitted in Q4 outlook that it “…expects the fourth quarter 2012 to be a challenging quarter in Smart Devices, with a lower-than-normal benefit from seasonality in volumes, primarily due to product transitions and our ramp up plan for our new devices… “
That “lower-than-normal benefit from seasonality in volumes“ most likely means that Nokia does not expect any growth in smartphone volumes in Q4. Which translates into 6.3 million smartphones sold during October-December. With the way Symbian is dropping already – only 2 million of them will be on the old OS. The rest – 4.3 million – will be Lumia Windows Phones. Probably half of them will be older cheaper Lumias Nokia still has to sell. Which leaves 2.2 million for Lumia 920 and 820.
So, Nokia claims they have the best most innovative smartphone out there in Lumia 920. And then there’s cheaper 820. In this day and age, when Samsung ships 10 million of Galaxy S3s in the first two months, Apple sells 5 million iPhones in a launch weekend, try putting any positive spin on that 2.2 million Lumias number. For Nokia. For a flagship. On a platform it’s been selling for a year already. I can’t.
Oh yes, that other excuse. “… our ramp up plan for our new devices… ” Can you tell me what that means?
Nokia already has distribution/sales organization in place. It is shifting 70+ million devices a quarter, after all. So sales org doesn’t need much ramping-up. Maybe manufacturing? But Nokia has already been making Windows Phones for more than a year. Most of high-end NWPs are made in Nokia’s own factories. And they made millions of Lumias there already. So manufacturing does not need much ramping too. Component shortages? Well, there were supply issues with S4 Snapdragons from Qualcomm. But those ended months ago, haven’t heard anything about component shortages lately.
The only problem Nokia does have, for about a year now, is low demand for Lumia smartphones. Which would explain why Nokia needs to have at least 7 week “ramp-up” period” for its most important product of the year. It has burned its carrier, wholesale and retail partners enough, starting with N97 ending with Lumia 800. And lost enough clout in the meantime, so now partners are telling Nokia to take a hike.
And Stephen Elop knows it. He already started preparing ground for Lumia 920/820 WP8 sales disappointment in January. Yesterday, when pressed about carrier and retail interest in Lumia 920/820, the only thing Nokia CEO was able to say was that “carriers and partners are responding favorably to innovations in Lumia 920”. Never once did he mention carrier demand during the conference call.
The “ramp –up”. “We are launching only in select markets on select carriers in Q4” statement. Why is Nokia limiting itself so much when it bleeds money and needs to go big? It’s simple –they can not go big. There is no demand from carriers and other resellers who matter. So Nokia goes to a few of them with “the biggest marketing budget ever”, and hopes for the best. Maybe it will work this time. With a halo of overall Windows 8 launch.
As if it was the lack of marketing money that doomed Lumia 800. As if the biggest marketing budget and exclusive AT&T partnership made Lumia 900 such a success. And now the guy behind AT&T Lumia 900 stratagem is in charge of Nokia global sales.
Windows Phone 8 will be a great success. The big breakthrough for Nokia. Just wait until they ramp up the sales… sometime in 2013
I’ll be very happy to find out how wrong I was when Q4 numbers come in, early next year. But I just don’t see anything good happening to Nokia anytime soon.
And they are running out of time.