Nokia Hates Its Day in the Spotlight

by Brad Moon | April 19, 2013 9:44 am

With all the press that smartphone makers like Samsung (PINK:SSNLF[1]) and BlackBerry (NASDAQ:BBRY[2]) have had in recent weeks, Nokia (NYSE:NOK[3]) — the one-time cell phone market leader was probably — feeling a little left out.

However, after its earnings report and a subsequent drubbing of its stock — down 11% by Thursday’s end — Nokia is probably wishing the spotlight would go somewhere else.

A New Hope

Like BlackBerry, Nokia was hoping 2013 would be its turnaround year. The company had endured six consecutive quarters in the red, it lost its long-held title of world’s biggest cell phone maker[4] to Samsung, and devices running its Symbian mobile operating system plunged from 16.5% of the market in 2011 to 3.3% in 2012.

Making the situation worse, Microsoft’s (NASDAQ:MSFT[5]) Windows Phone 8 — which Nokia adopted as its new smartphone platform in 2012 — failed to come even close to making up the difference, with Windows managing to eke out just a 2.5% share.

Last year saw embarrassing fumbles just as the company was prepping to launch that comeback bid. First, Samsung stole Nokia’s thunder[6] by putting together a quick event to snatch away the honor of unveiling the world’s first Windows 8 smartphone — after Nokia had already scheduled its launch. Then Nokia engineered its own PR mess by trumpeting the advanced capabilities of the PureView camera in its new Lumia 920 smartphone, only to be exposed for having faked the photos and video attributed to the new device[7] in its launch presentation.

But the new year posed the possibility that Nokia had turned a corner. While Windows Phone 8 market share was minuscule, it actually had lagged just behind Google’s (NASDAQ:GOOG[8]) Android in terms of year-over-year growth for 2012, notching a 98.9% increase. The sheer numbers were low, but the trend was positive.

And in January, Nokia outperformed expectations with 4.4 million Lumia 920s shipping in the previous quarter, sales of $10.7 billion, a profit of $557 million and smartphone sales overall up for the first time in a year. The news drove Nokia stock up nearly 20%[9], even though Nokia warned of a weaker Q1 coming.

With the recent launch of cheaper Lumias (the 520 and 720) adding to the company’s smartphone mix, and a push into the Chinese market, there was speculation Nokia’s Q1 results could be good enough to signal an actual turnaround instead of a one-off good quarter.

A Bump in the Road

Instead, Nokia reported a Q1 operating loss of $196 million on $7.6 billion in revenue, with overall mobile device sales down 32% compared to the same quarter in 2012[10]. Smartphones were off 49% year-over-year.

On the plus side, the loss was much lower than the staggering $1.2 billion shortfall reported in Q1 2012, and sales of the Lumia 920 continued to have legs, shipping 5.6 million units (up 27% over the previous quarter). TechCrunch also reports an interesting situation where the company’s U.S. smartphone sales (traditionally Nokia’s weak spot) were up 9% year-over-year[11], while its Chinese sales (traditionally a strong point) dropped 56%.

So what does this say about the turnaround?

Nokia’s estimates for Lumia 920 sales in Q2 is 7.1 million units, up another 27% compared to this quarter. Its success seems to prove that there is a market for Windows smartphones and that people are willing to pay for a premium Nokia device again — even Americans, who have shown a distinct preference for iPhones and Galaxy S IIIs.

If the rumor mill is to be believed, it appears as though Nokia is planning an assault on the premium market this year, hoping the Lumia 920’s success will rub off on an expanded line of high-end devices designed to directly take on Apple and Samsung. If true, this strategy would be highly reliant on continued expansion of that U.S. market, because this price point doesn’t play as well in China. So, what’s supposedly in Nokia’s product pipeline?

If Nokia is chasing the premium market, these products might well make sense.

Smartphones are increasingly replacing point-and-shoot digital cameras for consumers; a phone that leverages the capabilities of Nokia’s PureView camera could win over customers who aren’t happy with existing smartphone cameras. Samsung has proved there’s a demand for huge smartphone/tablet hybrids with the Galaxy Note, and a big Lumia could really show off Windows Phone 8’s capabilities — it also could conceivably attract Windows tablet shoppers who don’t care for Windows RT.

Finally, Samsung might have stuck with plastic casing[12], but thin is in, and smartphones with aluminum bodies like the iPhone 5 and HTC’s One[13] are frequently praised for their stylish looks.

Bottom Line

Nokia’s fate comes down to partnerships and a gamble on going upscale.

First, its partnership with China Mobile (NYSE:CHL[14]) — combined with the recently launched, cheaper Lumias — needs to bear fruit and reverse that 56% decline[15]. Second, its Microsoft partnership needs to pay off — Windows Phone 8 needs to surpass BB10 as the third-place mobile platform to become the alternative to iOS and Android, ensuring greater carrier support. Finally, If the rumored new Nokia smartphones for 2013 are on the money, the company has to hope consumers look at its products as being attractive enough and powerful enough to be considered as true alternatives to the iPhones, Z10s and Galaxy S IVs they’ll be going up against.

That’s a lot of things that have to go right. A wrong guess or two and 2013 could end up being a repeat of 2012 for Nokia.

But if it plays its cards right, this year could indeed mark its return to being something more than an also-ran in the smartphone market.

As of this this writing, Brad Moon did not hold a position in any of the aforementioned securities.

  1. SSNLF:
  2. BBRY:
  3. NOK:
  4. it lost its long-held title of world’s biggest cell phone maker: http://rtakes_nokia_as_king_of_cell_phones/
  5. MSFT:
  6. Samsung stole Nokia’s thunder:
  7. exposed for having faked the photos and video attributed to the new device:
  8. GOOG:
  9. The news drove Nokia stock up nearly 20%:
  10. overall mobile device sales down 32% compared to the same quarter in 2012:
  11. were up 9% year-over-year:
  12. Samsung might have stuck with plastic casing:
  13. HTC’s One:
  14. CHL:
  15. needs to bear fruit and reverse that 56% decline:

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