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Summary:

Nokia reported quarterly sales of 111.1 million devices but profits still plunged amid declining average selling price per handset. The company expects to lose market share in 2010 but feels it is well positioned with its N8 smartphone. But why no mention of MeeGo this year?

Nokia today announced quarterly results that gave investors and those hopeful for the company’s future, little reason to cheer. The company continues to be the largest mobile handset-maker globally, selling 111.1 million devices in the second quarter, with smartphones accounting for 24 million of those — an increase of 12 percent in smartphone sales from the prior quarter. This sales growth is lessened by a drop in the average selling price per phone to 61 Euros, which down one Euro from the prior quarter. Results for the quarter were within the lowered expectations Nokia pre-announced last month as net profits dropped 40 percent from the same quarter last year.

Amid reports of a potential CEO replacement, Nokia’s numbers don’t instill confidence that much will change for the better this year. The company says it expects device sales to be flat through 2010 and figures to continue losing overall market share as a result. What then will be the catalyst for positive change in 2011? Nokia CEO, Olli-Pekka Kallasvuo, offers this statement in the press release of the company’s results:

Despite facing continuing competitive challenges, we ended the second quarter with several reasons to be optimistic about our future. For one, the global handset market has continued to grow at a healthy pace, led by some of the less mature markets where Nokia is strong. We are also encouraged by the solid second quarter performance of our Mobile Phones business, helped by an improving line-up of affordable models.

In smartphones, we continue to renew our portfolio. We believe that the Nokia N8, the first of our Symbian^3 devices, will have a user experience superior to that of any smartphone Nokia has created. The Nokia N8 will be followed soon thereafter by further Symbian^3 smartphones that we are confident will give the platform broader appeal and reach, and kick-start Nokia’s fightback at the higher end of the market.

There’s much to agree with and yet, disagree with, in this statement, which sounds like a lightly tweaked version of the same bit over the past few quarters. The global handset market is growing and much of that growth is in less mature markets. But at some point, such markets will mature in terms of wireless broadband infrastructure. And costs of higher-end devices that are best poised to leverage that infrastructure are coming down: today’s smartphone will be tomorrow’s feature-phone, if you will.

Perhaps the most concerning aspect of Kallasvuo’s statement is no mention of MeeGo, the young platform that Nokia is positioning for higher-end — read: higher profit margin — devices. I’ve pointed out how difficult it is at this time to create a new mobile platform, and a thriving ecosystem to support it, yet we keep hearing how the MeeGo strategy is going to save the company when devices arrive later this year. They might arrive, but they’ll be first-generation devices competing against more mature platforms and that means they won’t help the company until 2011 at best.

Related research report from GigaOM Pro (sub req’d):

It’s Time for Nokia to Embrace Android

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  1. ” We believe that the Nokia N8, the first of our Symbian^3 devices, will have a user experience superior to that of any smartphone Nokia has created”

    That’s not saying much is it? Like Microsoft putting out some WinMo 6.5 phones before it got out out to pasture, the Kin debacle filling in the gap till the v1.0 Windows Phone 7 – Nokia’s dealing with a transition of it’s OS and we’ll see how long MeeGo takes.
    The best Nokia’s done – no reference to the market leaders. It’s going to end in tears for Nokia.

  2. Kevin, since Nokia haven’t released a consumer targeted N Series device for the best part of a year it’s hardly surprising they haven’t got anything to show at the high end. The strategy is clear – the N8 will come out for Q4, it will be followed by other S^3 devices (N8 variants, X and E series), then by S^4 and MeeGo in 2011.

    How you can possibly say that Nokia is ‘lost in the woods’ when this strategy has been published for months and is being executed to plan is quite amazing.

    Perhaps you can also explain to me how Nokia are losing smartphone share? Here’s Gartner’s market share numbers:

    Q3 09 – 38%, Q4 09 – 39%, Q1 10 – 40% and Q2 10 – 41%

    by contrast here’s Apple’s:

    Q3 09 – 17%, Q4 09 – 16%, Q1 10 – 16% and Q2 10 – 14%

    So who is really losing market share?

    Kevin, you’re usually better than this but this topic smacks of incompetence and lazy journalism. Open your eyes and look at the facts – who do you actually think is leading the transition from dumbphones to feature phones by gasp dropping prices? Nokia have been doing this for over a year and other companies are only now talking about it?

    Please. It’s nonsense like this and stating that Nokia should move to Android when Symbian sells more units than the next two or three operating systems put together that drag down tech reporting.

    Look beyond the hype. If Nokia sell even 3-5 million N8s – which they will – that’s 3-5 million iPhones or high end Android devices that don’t get bought and then what happens to their market share?

    Shame on you.

    1. Kevin C. Tofel Mark Thursday, July 22, 2010

      Mark, as someone with a degree in economics and a concentration in statistics, I know that there are many ways to use the numbers to prove whatever point you want to prove. I don’t begrudge you that and I appreciate your detailed comment.

      But look past the numbers you provided for a minute. How is Nokia’s stock doing? Down over the past few years. How are their net profits? Down 40%. What kind of statement is their CEO making with these numbers? A conciliatory one on the poor performance.

      And the strategy may be clear (this time around) but you seem think that it’s a guaranteed success as a result. You haven’t convinced me as to why. Even if you did, it’s not you (nor me) that has to convince anyone: it’s the company and their financial performance — not my numbers nor yours — don’t install confidence just yet.

      I’d also consider Android in the market share numbers as their growth rate is far higher than both Nokia’s and Apple’s. Sometimes you have to look at the trends, not just the hard numbers. Thanks again for the comment — for the calls of incompetence, not so much. ;)

      1. Ack! Almost forgot to point out the lazy commenting on your part. ;)

        You asked: “Perhaps you can also explain to me how Nokia are losing smartphone share? “

        Nokia’s press release (linked in the post) specifically says “Nokia continues to expect its mobile device value market share to be slightly lower in 2010, compared to 2009.”

        Their words, not mine.

      2. Kevin, for the record, one of my degrees is also in economics. I also have qualifications in psychology, business admin and statistical analysis as well as computer science.

        Let’s face facts:

        1) As an economist you know that stock price is largely based on prospective growth. When this reaches saturation it drops. This has happened to Microsoft, RIM, Nokia and many others. It will happen to the likes of Apple and Google (and may already be in the case of the latter) too.
        2) Net profits include the red headed step child NSN. Handset and services profits were $830 million, down 19% driven by a lower ASP because Nokia do not have a compelling high end range to push that up. When they do it will.
        3) Don’t get me wrong, OPK has failed to provide leadership and I suspect he will pay for that but Nokia’s fundamentals remain sound.
        4) At no point do I say it’s a guaranteed success, merely a clearly defined and well published strategy. The execution is a different matter and I don’t have a crystal ball with me to see how that will go. That said, the transition from dumbphones to smartphones and the democratisation of the platform appears to be going well.
        5) As for numbers, increased share, increased sales and reasonable profits beating any mainstream competitor over the last few years (not Apple who sell to the high end exclusively) are good.
        6) Android has been growing fast indeed… and yet Nokia continue to increase market share.
        7) Don’t be disingenuous, Kevin. Your link on ‘losing market share’ is to an infographic that deals with smartphone marketshare. Nokia’s quote is for the overall phone market. They’re also the only (I think) phone company that allows for the pirate market in those figures.

        You’re not incompetent, Kevin, but this is lazy.

      3. All good points that I understand, but have a differing opinion on some. I don’t think that makes me lazy, but I’d never say your opinion is wrong — it’s yours to make and yours to own.

        At the end of the day, the situation we’re discussing isn’t black and white, nor cut and dry. We will each interpret numbers, quotes and strategies in our own way. And we’re both right from certain points of view. I’d rather leave it at that then debate each point because although the conversation is insightful, it’s unlikely we’ll ever agree. I say that out of respect for your opinion, not to dismiss it.

  3. Kevin,

    I didn’t hear the earnings call but I have read a number or reports following it and in all they mention that Kallasvuo specifically talks about MeeGo, one of the quotes from him was “we will need MeeGo in the US”

    So I’m not sure if this statement you made is correct:
    “Perhaps the most concerning aspect of Kallasvuo’s statement is no mention of MeeGo, the young platform that Nokia is positioning for higher-end”

    Like I say i didn’t hear the call so maybe he’s been miss quoted. One of the places I found information about this was on http://www.allaboutsymbian.com/news/item/11852_Nokia_Q2_2010_results-profits_.php

    1. Kevin,

      Saying Meego is a young platform is same as saying iOS is a young platform. iOS is less than 2 months old and MeeGo is about 6 months old.

      Both OSses are just renamed. Meego, earlier Maemo, is older than iOS and has been used in Nokia pocketable tablets for years. And both Meego and iOS are based on years-old computer OS tech.

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