Nokia posts loss, future hinges on new Lumia sales

Reuters News
Posted: Oct 17, 2012 7:02 PM
Nokia posts loss, future hinges on new Lumia sales

By Ritsuko Ando

HELSINKI (Reuters) - Nokia <NOK1V.HE> reported another quarterly loss on Thursday and warned of more tough times ahead, raising the stakes for smartphone launches next month aimed at clawing back market share lost to Apple and Samsung.

Once the world's biggest mobile phone maker and a trail-blazer in the sector, the Finnish firm has fallen behind Apple's <AAPL.O> iPhone and Samsung's <005930.KS> Galaxy phones in the lucrative smartphone market.

On Thursday, it reported an underlying loss for the third quarter of 0.07 euros per share before one-off items, compared with a profit of 0.03 euros a year earlier.

This marked the third straight quarter of underlying losses but was better than the market's average forecast of a 0.11 euro loss, thanks to strong profits at its telecoms equipment venture Nokia Siemens Networks <NOKI.UL>. However, pressure was still growing on Chief Executive Stephen Elop, who was hired in 2010 to turn the company around.

"The clock is ticking for him. We really need some success," said Juha Varis, Danske Capital's senior portfolio manager whose fund owns Nokia shares. "Listening to Elop's voice, it sounded like he feels the pressure."

Nokia is pinning its hopes on the new Lumia 820 and 920 models, which come in vivid colors, have high-resolution cameras and are due to hit the stores in November.

The phones run on new Windows Phone 8 software, part of Elop's strategy switch in February 2011 to scrap Nokia's own software in favor of Microsoft's <MSFT.O>.

Nokia shares briefly rose as much as 10 percent on the results but fell back later to be up 1.3 percent at 2.23 euros by 1510 GMT.

Jefferies analyst Lee Simpson warned investors were "in danger of buying a challenged product cycle", warning that the company could keep burning cash for another year.


Nokia has been cutting jobs, slashing spending in marketing and research, and selling assets such as its Vertu luxury handset unit to improve its finances. But a big drop in sales has been draining its cash reserves.

Its net cash fell to 3.6 billion euros ($4.7 billion) from 4.2 billion in June, although it was higher than market forecasts of 3.4 billion euros.

Investors and analysts have said that if its cash position keeps worsening and Lumia sales fail to shine in the next few months, the company may need to change its strategy - as well as its leader.

A few analysts recommend buying the shares, saying they look cheap at recent levels, with little premium over the value of assets such as patents. The shares have fallen around 70 percent since the Microsoft tie-up in February 2011, hitting an 18-year low of 1.33 euros in July.

But others say it is pointless to ponder valuations when a company, particularly in the fast-moving consumer technology industry, is losing market share.

In the third quarter, sales of the existing range of Lumia smartphones fell to 2.9 million from 4 million in the second quarter. Average selling prices dropped to 160 euros from 186 euros per phone.

Sales of mid-range feature phones rose from the previous quarter, helped by the new Asha models, but Nokia's long-term survival is seen as dependent on higher-margin smartphones.

"Feature phones are a sunset technology and smartphones are sun rising, so they need to transfer growth to the sun rising technology," said Neil Mawston, analyst at Strategy Analytics.


Nokia said the fourth quarter would be challenging as it starts to roll out the Lumia 820 and 920, and investors also expect a tough time. "I think Nokia will continue to have a rough ride," said Inge Heydorn, fund manager at Sentat Asset Management.

The pre-holiday shopping season is crucial for mobile phone makers, and the new Lumias will face strong competition from Apple's new iPhone 5 and Samsung's Galaxy SIII.

"Lofty market expectations for Q4 ignore the reality that new products will ship halfway through the quarter into an overwhelmingly competitive and congested market," said CCS Insight analyst Geoff Blaber.

The new Lumias will also be competing with new tablets this Christmas, including Apple's new mini iPad which is expected to be launched next week.

Elop said he was encouraged by the improvement at Nokia Siemens Networks.

Underlying operating profit at NSN jumped to 323 million euros from 6 million a year earlier, with cost cuts and rising sales helping to beat all analysts' expectations in the Reuters poll. The venture is in the midst of chopping annual costs by 1 billion euros, including 17,000 job cuts.

($1 = 0.7621 euros)

(Additional reporting by Tarmo Virki, Terhi Kinnunen and Jussi Rosendahl in Helsinki and Simon Johnson, Patrick Lannin and Niklas Pollard in Stockholm; editing by Jane Barrett and David Stamp)