Nokia Posts $1.2 Billion Loss as Phone Sales Tumble
Nokia, struggling to reinvent its smartphone business around Microsoft’s Windows Phone software, said Thursday that it might have to cut prices of its cheaper Lumia models to keep its new phones competitive in some markets.
While the company said the introduction of the Lumia 900 in the United States was going well, the prospect of price cuts did not thrill investors, who were warned by the company last week to expect a large loss in the first quarter and more losses in the second quarter. The company announced Thursday that it had a loss of 929 million euros (about $1.2 billion) in the first quarter as sales plunged 29 percent because of flagging demand for its smartphones using the older Symbian operating system.
The loss contrasts with a profit of 344 million euros ($450 million) a year earlier. Sales fell to 7.4 billion euros ($10 billion) in the quarter, from 10.4 billion euros a year earlier.
The number of smartphones — both the Symbian-based phones and the new Microsoft-based Lumias — shipped by Nokia to operators and other sellers fell to 11.9 million in the quarter, from 24.2 million the previous year.
Shares of Nokia fell 3.8 percent, to $3.82.
Nokia’s chief executive, Stephen Elop, said Nokia would accelerate its cost-cutting amid what he described as a mixed response to its new Lumia smartphones with Windows.
“Clearly we are disappointed with our performance in the first quarter,” Mr. Elop said during an interview. “At the same time, the numbers mask the totality of what we have accomplished. Lumia is up and running in the U.S.A. We are clearly in the heart of the transition.”
Mr. Elop, who used to run Microsoft’s business software division before taking the helm at Nokia, said United States sales of the Lumia 900 through AT&T Wireless had exceeded the company’s expectations. The phone is now in short supply, he said.
“The sellout situation could be improved if we actually had more product in the stores,” he told analysts in a conference call.
Nokia was taking steps, Mr. Elop said, to increase the available stocks of the smartphones. In Britain, however, Mr. Elop said, Nokia was encountering difficulty raising awareness for Lumia, which was being overshadowed by Apple’s iPhone and devices running Google’s Android operating system. He suggested that other models in the Lumia line, like the 800, might need to be discounted, though the company has been cautious.
He also said that Nokia was rapidly bringing the Lumia into new markets. Sales of the Lumia 610, the least expensive model in the lineup, were set to begin in Asia next week, in the Philippines.
In coming weeks, Nokia will start selling the phone in China, Singapore, Vietnam, Taiwan, Indonesia and Malaysia.
Mr. Elop said Nokia planned to increase advertising expenditures for Lumia in the second quarter, though he did not give specifics. Francisco Jeronimo, an analyst at International Data Corporation in London, said Nokia’s weak financial results had largely been expected by investors, who have been heartened to see gains in sales of the Lumia lineup. Nokia, which introduced the Lumia line last year, sold more than a million of the phones during the fourth quarter of last year.
In the first quarter of this year, the number rose to two million, at an average selling price of 220 euros ($290). It took more than a year for Apple to consistently sell more than two million iPhones in a quarter, Mr. Jeronimo said. And it took Google more than a year and a half to do the same with Android, he added.
“So judged by that measure, Nokia is doing well,” he said.
In the short term, however, Nokia continues to suffer. Sales in Nokia’s core devices and services division, which generates up to 60 percent of total sales, fell 40 percent in the quarter, to 4.24 billion euros ($5.6 billion), from 7.1 billion euros ($9.3 billion). Sales of smartphones fell 52 percent in the period, to 1.7 billion euros ($2.2 billion), from 3.5 billion euros ($4.6 billion), reflecting that consumers are ignoring the older Symbian-based phones.
Basic cellphones sales, which account for the bulk of Nokia’s handset business, also fell, amid rising competition from low-cost Asian rivals and pressure from Chinese mobile network operators, which are aggressively discounting the prices of basic phones. The average price for a basic Nokia phone fell 18 percent, to 33 euros ($43), from 40 euros ($52), a year earlier.
“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,” said Malik Saadi, an analyst at Informa Telecoms and Media in London.
The company’s loss in the first quarter was exacerbated by a 772 million euro ($1 billion) restructuring charge at Nokia Siemens Networks, its unprofitable network equipment joint venture with Siemens.
On Monday, Moody’s Investors Service downgraded Nokia’s long- and short-term debt ratings, citing its deteriorating financial position and questioning its ability to successfully make the transition to Windows.
The ratings agency warned that Nokia might have to inject more money into Nokia Siemens, which lost a combined 986 million euros ($1.3 billion) in 2010 and 2011.
Indeed, the situation appeared to worsen in the first quarter, as the venture’s operating loss grew to 1 billion euros ($1.3 billion), after a 142 million euro ($186 million) loss a year earlier. Sales fell 7 percent, to 2.9 billion euros ($3.8 billion).
Timo Ihamuotila, Nokia’s chief financial officer, said Nokia Siemens was making progress to restructure the business and return to profitability.
He said that Nokia Siemens Networks had 53 contracts to build new, faster mobile networks using Long Term Evolution technology, which he said were more than competitors, which include Ericsson of Sweden and Huawei of China, had.
“They are executing very well into their strategy,” Mr. Ihamuotila said during an interview. Mr. Elop said Nokia was looking at “trajectories, the number of contracts and customer trends,” among other statistical bellwethers, to gauge the prospects for Nokia Siemens.