Comment from Malik Saadi on Nokia’s 1Q12 financial results
It is clear that Nokia is struggling with its smartphone business but now it looks like it is also struggling with its mobile phone business. Sales in this segment are down from 84+ million in 1Q11 to a staggering 71 million units in 1Q12. This is a result of its poor performances in China, India and the Middle East, which is due to the proliferation of the grey market and also to the competition from Chinese ODMs and domestic brands (particularly in China and India). In China and India, operators are starting to promote their own brands and require more flexibility from their OEM partners, which means that Nokia will find it hard to compete with the Asian manufacturers.
In the smartphone segment, Nokia sold about 12 million devices (less than half of the amount sold during the same period last year) including 2 million Lumia smartphones. Clearly, the adoption of Windows Phone as the primary OS has not yet paid off as Nokia hoped and it remains to be seen if Lumia devices will shine in the future. Sales of Lumia devices in Europe and other parts of the world continue to be below our expectations. The current high-end Lumia devices are still no match for the iPhone and Samsung’s top-end Android smartphones, and mobile operators are finding it much easier to sell devices on Android or iOS platforms. Pushing Lumia devices across operators’ channels constitutes the biggest single challenge for Nokia. Dedicating huge shelves to Lumia devices in the operator stores is not enough to create consumer demand. Nokia will definitely have to increase its marketing budget and help operators to educate their salesforce to sell the Lumia devices. It desperately needs Microsoft to help with a massive marketing push to get the platform moving and compete effectively – unless it’s waiting for Windows 8.
Having said that, the flagship Lumia 900 was only recently launched in the US and it is still too early to evaluate the device’s sales performance in this market. Nokia is investing a lot to support this device both in terms of store space and shelf presence as well as a dedicated education campaign with AT&T’s sales reps. Equally, Nokia only launched its entry-level Lumia 610 in China this month and this will definitely open a new window of opportunity to increase sales of Lumia devices. So, looking forward, Nokia will have no more excuses but will have to outperform in terms of Lumia sales, otherwise the company will find it hard to regain the top spot in the mobile market.
Nokia is now losing the cash power it had once. This, together with the negative credit reports it faces, could weaken its innovation engine and affect its competitive ability. If the financial performance of the company stays bleak, the Finnish giant could face another round of strategic restructuring but this time it could be a target for a possible acquisition at a cheap price.