Analysis - Nokia progressing through challenging transition with Windows Phone

Today Nokia revealed its interim financial results for Q2 2012.  Nothing too shocking, really.  Keep in mind that this is a company that was once the largest phone manufacturer in the world, driven by Symbian and feature phones. Nokia now has to find its place in the smartphone market, and this position will really depend upon the market success of Microsoft’s Windows Phone platform. 

With that in mind, Nokia shipped 4 million Lumia phones during Q2.  It may seem like a drop in the bucket compared to iPhone or Samsung (Android) numbers, but when you compare it against RIM’s latest quarter (the shipped 7.8 million BlackBerry phones), it shows some forward momentum. 

Overall, Nokia sold 73 million phones. That’s 69 million non-Lumia phones. The company’s huge challenge is to hang onto the low end of the feature phone market (under attack from Android) while also converting many of its Symbian smartphone users onto Nokia-branded Windows Phone products in the future.  It’s a tall order, but Nokia has a pretty good fighting chance...

In terms of financial results, Nokia Corporation did 7.5 billion EUR in net sales, including the Nokia Siemens infrastructure division.  4 billion EUR came from devices and services.  The operating margin for this device & service business stands at negative 9.1%, which is obviously something Nokia hopes to change as it cuts costs and restructures its business.

WP Central

Cash-wise, Nokia is in pretty good shape.  They’ve got 4.2 billion EUR in net cash and, while not publishing a full cash flow statement yet, appear to be holding onto that number.  They’re losing money on hardware sales but they are getting a juicy quarterly payment from Microsoft to the tune of $250 million (196 million EUR), and they also get an annual minimum software royalty payment that comes pretty close to this level.  

Nokia’s disclosure says:

“Our agreement with Microsoft includes platform support payments from Microsoft to us as well as software royalty payments from us to Microsoft.  In the second quarter 2012, we received a quarterly platform support payment of USD 250 million (approximately EUR 196 million). Under the terms of the agreement governing the platform support payments, the amount of each quarterly platform support payment is USD 250 million. We have a competitive software royalty structure, which includes annual minimum software royalty commitments. Minimum software royalty commitments are paid quarterly. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US dollars. The total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments. In accordance with the contract terms, the platform support payments and annual minimum software royalty commitment payments continue for a corresponding period of time.”

Given that Nokia is the largest (and some might say only serious) supporter of Windows Phone, Microsoft’s future in mobile depends upon the success of Nokia.  Hence the platform support payments. 

Q3 is not going to be pretty.  Nokia said to expect continued losses in the hardware business, and a transition period in advance of the release of Windows 8.  The parallels to RIM here are very strong.  Nokia will see weakening demand for Symbian, and even the existing Lumia phones (non-upgradeable to Windows 8), just as RIM will see weakening demand for BlackBerry 7.  Both firms are racing to get their next platforms out, running a brand new operating system intended to carry them through the next decade of mobile computing.

The good news for Nokia is they’ve got cash, they are aggressively restructuring to avoid bleeding cash, and they have huge financial support from Microsoft as the company goes through the biggest transition of its existence.

As of this writing, Nokia's stock is up 15% to $1.80 a share and had hit a high of $1.96. That contrasts with the low of a $1.63 a few days ago meaning the market seems to be responding well to the news today.

(Chris Umiastowski is a contributing writer to the Mobile Nation network. You can see the rest of his posts here at AndroidCentral, iMore and Crackberry.)

  • Nokia WP8!!! can't wait/+Surface
  • Expecting some f.u.d. from vultures, nonetheless.
  • Lol lumia not Lumina XD
  • Is it an oversight that the article failed to mention that Nokia sold only 600K phones in the US, and their US sales are flat? Yet Elop said a focus on 1 carrier in the US for the 900 was the correct strategy?
  • How are sales flat when they have had no presence here prior? They did well here, relatively and considering they were a no-name in the US. Going from zero to 600,000 isn't spetacular but cracking a new market is hard.
  • Yes and no. Nokia is a no-name in the US, Windows & AT&T certainly aren't. And it appears Asymco's 330K number for the 900 was correct, or nearly so. In light of the money MS is paying them ($1B a year), the US sales are disappointing.
  • for what it is worth, the original 330k analysis was for all lumia devices not just 900.  I dont think the analysis specified lumia 900s. 
    In any case, the sales numbers are not good, but it was not unexpected either. 
  • Asymcos numbers wer not referring to just the 900, it was all Lumias....of course if is obvious now they were SO far off I'm sure they will try to spin it any way they can, but in reality they missed it and are hacks.  Just goes to show don't report shit you have no clue about, just report on the facts as reported today.
  • How do you know how far off they have? Asymco's figures were for how many devices were sold to consumers, Nokia's numbers of 600k were how many were *shipped* to carriers - so if every single one sold to a consumer, then you reached 600,000 but who really thinks the carriers sold through the lot?
    I bet that 330,000 (which would represent a sell-through of about half) isn't far off the mark.
  • Having the L900 only on AT@T killed them,stupid move on Nokias part.A couple of my family members have the 710 on T Mobile and it's a good phone but it's a far cry from L900.
  • Blame the carriers.  Just because OEMs show up on Verizon and Sprint's door with a WP device, doesn't mean the carriers are going to sell it.
    Sprint went all-in to get the iPhone so that's their focus is their until they make back the money they spent . And Verizon has been cold on all MS related devices since Kin (50% of the failure was due to Verizon changing their minds about offer lower cost data plans). Both those carriers got the worst WP launch devices and didn't even try to sell any of the second gen WP devices that came out.
    In fact Verizon was bullying WP saying they wouldn't sell any new phones until they had LTE. LTE WP comes out, now they want to wait till WP8.
  • Good summary. Dodgy carriers.
  • I would do the same thing if I was VZW, why put out a phone that might not sell well. When a new version of the phone is coming out in six months. I'd love to see just WPs vs iPhones. But Verizon has their hands in the android basket, putting out phones, what seems to be, every 3 weeks. I'm on VZW, and I know I'll be getting a wp8 (hopefully Lumia) when my contract is up early next year.
  • The L900 being on AT@T kept me from buying and guessing alot of others have done the same.T MO and other smaller carriers would have been all over the L900 if Nokia had offered it to them.
  • Sorry, but your statement is naive and petulant; Odog4ever just explained to you how carrier and oem relationships work.  
    It's fine that you chose not to move to ATT for the Lumia 900 - other consumers may have carrier loyalities, reception issues with ATT's service, and/or financial reasons for not going to AT&T as well.   These reasons are why many chose not to go to T-Mobile - or Verizon, or Sprint!
    Nokia is available, and obviously willing, to provide their Lumia devices to other carriers.  All the other carriers have to do is make the deal!
  • this +1
  • A far cry from the 900?  I wouldn't go that far.
    Sure, the 900 looks cool and the screen is larger which catches people's attention, but other than that, the 710 and 900 are almost identical.  Same processor, same ram, same screen resolution, 16gb instead of 8gb (which is still a lot), a slightly better camera (the 710's camera is average, which is adequate), the screen technology is a little better (but the 710's screen looks above average compared to most screens out there).
    My carrier of choice (Mobilicity) only had the option of the 710 (and the HTC Radar, but the 710 is way better and less expensive).  Even if I had the choice to buy the 800 or 900, I wouldn't have taken it.  The 800 and 900 cost 2x as much as the 710 up here, and are no even close to 2x the phone.  Even if you get it on contract with a company that sold 800 or 900 I'd still go for the 710, because if I broke the contract the early termination fee would be a lot less.
  • I'll never understand why they didn't offer the 800 in the USA. I mean that way, they could have retained the 900 exclusivity deal with AT&T (which allows for hero status advertising and promotion) and then the 800 across the board. Surely Microsoft and Nokia between then could have enticed carriers to take the device. Given that the home market is an important one for Microsoft, one would assume they'd be happy to offer sweetners to carriers, if only to establish a foothold in the market. Or maybe they knew all along, that WP8 was the future? If the latter is the case, I remain positive for a future push for WP8 devices.
  • The sales may be flat in the US, but the market is global, not just the United States. It's the number one phone in China. It should be a lot better next year when Microsoft finishes its transition to covering desktops, laptops, tablets, and phones in the same environment.
  • Wasnt their quarter over quarter lumia sales flat for total U.S devices?  That is what i read in some of the articles. 
    I believe that was what penguin meant, U.S Sales from Q1 were relatively same as Q2. 
    Nokia had a presense since 710 released which was Q1, but not a strong presence.  So if the 900 came out Q2 and the sales remained flat compared to Q1, that is not very good.  We all know that they are still playing catch-up. 
    I'd like to know how much of the  600,000 were 710, 900, and other Nokia devices because feature phones are included in the 600,000, oddly enough. 
  • Hopefully Nokia and Windows Phone can move in on Cricket, US Cellular, and Boost by the end of the year, or beginning of 2013. That would bring in more sales too.
  • Yeah, MSFT needs to get some WP7 devices on the prepaid carriers. All smartphones on those carriers right now are Android devices. Also, this'd be a good spot for WP7 devices after WP8 launches, I'd think.
  • Any WP devices on the "pay-as-you" and budget carriers would definitely help. I mean low-end Android phones literally have no competition in this space. 
    I remember walking by the "cell phone" section at the local Target and seeing about 10 no-name android slates that looked nearly identical. Same for any phone kiosk in a mall. If people had a chance to look at WP side-by-side with those cookie-cutter, bland looking phones I think the results would be interesting.
  • Nokia went with AT&T only because AT&T was the only carrier that agreed to actually spend marketing money on the Lumia in their stores and so on.  I don't think Verizon bothered and I doubt Sprint even thought about it.
    Regardless they'll all get Nokia devices in the fall probably, or Winter.   US Cellular already said they'll get WP8 devices, or are looking to.   I think though that since they're small they'll get any lower end WP8 phones.
  • T-mobile was marketing and promoting the 710 too.
  • Don't carriers ask for, and usually get, an exclusivity for 6 months or so?  That's the bane of existance for many manufacturers (it was part of the reason Palm died).  If I had to wait 6 months after the 900 came out in order to get it, I would just wait for WP8 as well.
    Elop is recently quoted as saying the next wave of Lumia phones will have "more differentiation".  So, it looks like there will be a wider variety of Lumia phones coming late fall, which would mean that AT&T can get one of the top models, while Verizon can get a slightly different, but just as great top model phone.  Hopefully T-Mobile will get a successor to the 710, (actually, I hope they all get that) and maybe T-Mo can get a top-of-the-line version model as well.
    Here's looking to next summer - hopefully there will be a T-Mo mid-range WP8 Lumia with a Pureview (or Pureview-ish) camera, which I can buy to replace my recently purchased 710.  :)
  • I blame this 4 million number to sheer execution.
    They just sold 600k lumia is US and that includes 710 numbers also. T-mobile alone sold 330K last quarter. It is still on top 5 on T-mobile, I expect 710 sales figure to be around 200k in this quarter. So Nokia roughly sold 400K lumia 900s in US. And there were news that Nokia delayed Lumia 900 launch to other countries (UK, Germany etc.) because there was a huge demand in US. To me this number doesn't look like a huge demand figure I mean Nokia's goal should have been on to bring the device on time (when all blogs arer talking about it) to as many countries & carriers as possible. Same delay was for 610 launch to many emerging countries wheree Nokia brand is strong.
    Nokia is only to blame. They could have easily surpassed 6 million figure given they have released the handsets on time. Learn from Apple & Samsung.
  • Let's hope they do a global milticarrier launch for their new WP8 portfolio.
  • You think they could of surpassed 6 million devices sold in one quarter WW?
  • Why not? India is one of Nokia's biggest market for low end phones. People trust Nokia brand. Many people can't afford to buy Lumia 800 & 900 off contract which costs around $500 - $700. The same reason they can't buy iPhone, although most of them want to buy. They delayed 610 launch in India and just launched it 2 weeks back (July 6th, 2012). You have to be crazy and not palying to your strengths and leave people to jump on Android bandwagon. Same way, they delayed lumia 900 in UK, Germany & Australia. Don't understand.. why?
  • The devil is in the detail, the trick for success in the current market is not simply about volume, it's about being able to sell with decent margins on hardware, only Apple and samsung are currently managed it - Nokia's gross margins on hardware went from about 15% to 1% - very worrying. 
  • While I cannot have any proof, I'd say that part of MSFT's deal with Nokia was to keep the price low to try to push WP7's marketshare upward, which it did, if ever so slightly, hence the give-away prices on the 900.
    Perhaps when WP8 comes out, the Nokia phones will be in the typical $200 sweetspot of smartphones.
  • <double post>
  • Not necessarily, when one's late to the party, imo. For example, MS came late to gaming home consoles businesses, and they decided to sell Xbox at a loss. It was the right decision.
  • The x-box has a shelf-life of about a decade, the ROI is not the same as a phone where you have constant R&D to produce a newer model - the analogue does not work for a company like nokia.
  • I think the biggest disappointment for me was the fact that we didn't get the 610 on prepaid carriers or the 800 on any us carriers and I bet if they both came they would have been much much more well received I don't get 800 dollars for the 800 :/ but im glad they sold at least half a million or a little more than
  • Exactly. Nokia's execution is poor. They don't seem to understand the market well. They should have pushed 610 like hell. And they have just started to sell 610 in some countries. Funny..
  • Nah, I think they should have pushed the 710 like hell and not bothered with the 610.
    Think about it.  Think about all the money Nokia spent designing a whole new phone completely different from the 710/800/900 (which all use the same processor and memory), when they could have just used that money spent on R&D and brought the price of the 710 down to 610 levels (in fact, the 610 is being sold for more $ in some countries than the 710 is being sold for in others).
    Think about all the money Microsoft spent making WP7 more efficient so that it could be run on less ram and a slower processor.  They could have used that money to either (A) make WP8 a lot better or (B) bring WIndows Phone 8 to market a little faster or (C) give the money to Nokia to subsidize the price of 710's in emerging markets.  Little, if any, efficiencies found in WP7 can be brought over to WP8.
    I think this would have been a much better use of time and money, and would have probably increased sales as well.
  • May I know what the stocks app is you are using inthe picture above.
  • We haven't seen worst yet. But the future will be bright. 
  • I'll def give my Money to Nokia on my next Windows Phone Purchase, I have an HTC now and i really like it but WE need to support Nokia! ;)
  • Nokia +pureview+wp8= my next phone... I'm very unhappy with my Titan... Crappy for dialing...