Nokia Is Still Lost in the Woods

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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