Nokia results confirm that it is in big trouble

It looks like Nokia isn’t about to stop hemorrhaging any time soon. The release of its latest quarterly report highlights just how bad things are, for the once mighty mobile company.

The bright point for investors is that this bad news was anticipated, and mostly factored into the share price. Overall net sales fell by 19% year on year but were a smidgen higher than the traditionally bad first quarter, up three percent.

The overall loss was close to US$1-billion for the quarter but cash reserves did shoot up as a result of cost cutting and tighter controls by US$125-million.

Nokia is a pale shell of the dynamic market leader of 2010 and the so-called transition period hasn’t made much of a difference overall. Sales of its flagship Lumia devices have hit four million units but critically the profit margin on the sale of smart devices, which includes Lumia sales, fell from 15,6% in Q1 to a mere 1.5% in Q2. The fall on margin highlights how badly the overall uptake of Lumia devices but also how negatively the market has reacted to the announcement that the current Lumia devices will not be upgradeable to Windows Phone 8.

The bare numbers, however stark, do not tell the full story though. Transitions are costly, both in bottom line numbers and in the toll it takes on the brand. The Microsoft Nokia partnership, which made sense at the time, has proven to be too little too late for the company as sales of the Lumia range are not growing fast enough to offset the fall of all the other S40 and lesser devices.

Nokia still has a chance to recover, its cash resources and manufacturing prowess coupled with its status as the number one or number two mobile brand in a number of markets around the world, allows it a few more quarters to get things right. Nokia should be very clear what its new Windows Phone 8 strategy is, and what the devices slated to launch in the last quarter of 2012 will be. Nokia has also been very reticent to announce when it thinks it will be returning to profitability, and once again made no mention of this in these results.

The lack of clarity on what the strategy regarding the current Symbian devices is, also gives the market no direction. Smartphone growth, mainly focused on Android, especially at the low to medium end of the market, is continuing to decimate sales of the so-called dumb phones, and the Nokia portfolio of Series 40 Symbian phones, whilst smart on the surface, are being lumped into the overall non smartphone market.

The sun has not set as yet on Nokia, but there needs to be far greater urgency and much more visible change from management, the days of business as usual are long gone. Crisis is the name of the game, and Nokia desperately needs a fresh clean strategy, which allows it to effectively compete in all the markets in which it has traditionally been strong. For now it looks like the Android juggernaut is rolling on, and in fact over Nokia in all its traditional markets. Windows Phone may ultimately just be too little too late for the previous market leader.



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