Nokia sales fall despite Lumia’s boost

MANAGEMENT QUESTION::Analysts wonder how much longer CEO Stephen Elop will have to prove he has put the company on the right track and keep his job

Reuters, HELSINKI

Fri, Apr 19, 2013 - Page 14

A big fall in sales of Nokia’s basic phones overshadowed a stronger performance from its Lumia smartphones in the first quarter, and it said it expected operating margins to deteriorate, sending its shares tumbling.

The mobile phone maker also reported an unexpected fall in sales at its previously upbeat equipment venture Nokia Siemens Networks.

The Finnish company, which has fallen behind Samsung and Apple in the smartphone race, said it sold 5.6 million units of Lumia handsets in the first quarter, up from 4.4 million in the previous quarter and in line with expectations.

However, overall net sales fell 20 percent to 5.9 billion euros (US$7.7 billion) from a year earlier, while phone volumes tumbled 30 percent on the previous quarter.

It forecast margins in its devices and services business would be “approximately negative 2 percent” in the second quarter, down from a positive 0.1 percent in the first quarter.

“The shortfall is in the [cheaper] mobile phone side, where both volumes and average selling prices came lower than expected. That is of course a bit worrying, since that has been their bread and butter business in the Devices and Services unit,” said Hakan Wranne, an analyst at Swedbank. “I think we will see the market’s profit estimates for 2014 come down.”

Nokia’s chief executive Stephen Elop, who was hired in 2010 to lead a turnaround and took the decision to switch to the untried Windows software in early 2011, had said the transition would take about two years, a period that’s now over, raising questions about how much longer he has to show the company is on the right track.

“Basically, he has only the second quarter,” said Mikko Ervasti at the Finnish investment banking and wealth management group Evli.

The company has been bleeding cash in the meantime and was forced to cancel its dividend and sell and lease back its headquarters to boost its coffers, though its net cash position by the end of last month had unexpectedly improved to 4.5 billion euros from 4.4 billion three months earlier.

The company’s first-quarter underlying loss, which excludes special items, decreased to 0.02 euros from 0.08 euros a year earlier. Markets had expected a 0.04 loss, according to a Reuters poll.

While Nokia still sells more regular mobile phones than smartphones, its future depends on higher-margin smartphones as a growing number of global consumers want access to apps such as Twitter from their handsets.

The smartphone industry’s top two players show little sign of ceding market share. A Reuters survey showed the market estimates Samsung shipped about 61.6 million smartphones in the first quarter, and Apple shipped 36.9 million iPhones.