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Nokia (s nok) today announced quarterly results that show improvements in how the company is doing in the highly competitive smartphone market, shipping 26.5 million such devices in the period, a 61 percent increase from the year-ago quarter, and a 10 percent improvement over the prior quarter. Even with such positive results, Nokia still faces a challenge in executing its Symbian strategy in a timely fashion, as its competitors are well positioned. Perhaps most disheartening for Nokia are signs of weakness in regional markets that Nokia has traditionally relied upon.
Nokia’s quarterly numbers are the first since Stephen Elop took over as Nokia’s new president and CEO in September, but the company’s results have nothing to do with Elop, given his short tenure. Even though Elop isn’t responsible for today’s numbers, he’s beginning to make an impact on the company’s future. In tandem with the company’s financial news, Elop is bringing change in the form of 1,800 job cuts associated with a repositioning of Nokia’s software strategy. Going forward, Nokia won’t refer to its smartphone platform as Symbian^3, Symbian^4, etc… Instead, it will simply be Symbian and will be upgraded on a rolling basis. Based on my experience with the Nokia N8, the company has room to roll out improvements; superior hardware is hampered by a mix of software and user interface issues.
Additionally, Nokia will put greater emphasis on its Qt development framework, declaring it now the sole platform to create apps for Symbian and MeeGo devices. That’s another strategy change, and while a positive one, a company that constantly changes strategy never executes a strategy. Here’s Rich Green, Nokia’s CTO, explaining the new stance on Qt:
Regardless of the platform focus, the increased sales growth in Nokia’s higher-end devices is helpful in multiple ways. The cost of creating a mobile app can easily surpass six figures, so developers are keen to watch which devices and platforms consumers are attracted to, and therefore, which of those smartphones are a potentially good target for their apps. A greater number of high-end device sales also raises the average selling price and profit margins for handsets. Nokia doesn’t enjoy the roughly $600 ASP that Apple does, but Nokia’s ASP did increase in the quarter to €65 (US $91) as compared to €61 in the prior quarter and €64 from the year ago period. You don’t need an accounting degree to understand that selling more devices at a higher price brings increases in revenue.
Even with such improvements, however, Nokia is realistic about the challenges it continues to face from devices running on rival platforms such as Apple’s iOS (s aapl) and Google’s Android (s goog) systems. From the investor release today:
Nokia now expects its mobile device volume market share to be slightly down in 2010, compared to 2009. Nokia earlier targeted its mobile device volume market share to be flat in 2010, compared to 2009. Nokia continues to expect its mobile device market share to be slightly lower in 2010, compared to 2009.
They say that admitting the problem is the first sign of recovery, and to be fair, Nokia has made similar statements about the overall market in the past. Despite smartphone sales rising, Nokia expect its global market share to be decreasing in 2010 because its competitors are exhibiting more growth. Apple, for example, recently announced quarterly iPhone sales of 14.1 million units, good for a 91 percent increase in year-over-year sales. Nokia’s own sales numbers show weakness in areas where it has traditionally been a strong player: device sales in the Middle East and Africa regions as well as in Asia-Pacific markets declined on both a quarterly and yearly basis.
The issue in these regions isn’t Apple; it’s Google’s Android army. India, a place where you could find consumers with a Nokia everywhere you turn, is starting to see an influx of low-cost Android devices from local handset makers. Google providing Android to these companies at no charge give them a chance to compete against Nokia while bringing smartphone features and apps to the masses. And India is just one example: Asian handset makers without a mobile platform and ecosystem of their own are more than happy to take the free Android system for low-end devices.
The overall results for Nokia should be seen as a positive, but with competitors exhibiting stronger smartphone sales growth, Nokia still has a long road ahead of it. With Elop now taking the wheel to drive change, it’s going to be an interesting ride.
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