Ok its that time again, the quarterly results are coming in now very rapidly. I've had some very intense travel and bad connectivity but lets try to get some of these numbers analyzed.
WHEN BAD IS NOT SO BAD: APPLE
Apple reported Q3 results (calendar Q3 which confusingly in Apple's fiscal year is Q4. I am obviously talking of the calendar quarter from July to September). Apple reported 17.1 million iPhones sold in the quarter, which is down 16% from Q2 when they sold 20.3 million. Apple's preliminary market share is down from 19% to 15% in the quarter. This is the first sequential decline in iPhone sales since Q2 of 2010. This is still the 'typical' iPhone sales pattern, which always surges after the new model iPhone is released, and then its growth rates slow in consecutive quarters and eventually sales fall about year later. Where Apple surprised us all in Q2 of this year - where the pattern said there should have been a decline, that was postponed by some clever marketing tricks - iPhone White - and the expansion of the carrier footprint (plus obviously the collapse of Nokia and Blackberry the two biggest competitors to Apple a year ago at this time).
Why this drop? Note, we know that the new model iPhone 4S has achieved 4 million sales in its first days. Had Apple been able to release the iPhone 4S on the last days of September - into Q3 - we'd see Apple with 21.1 million iPhone sales and 18% market share for Q3 - but because the launch was delayed to mid-October, those sales were shifted to now. It does mean, however, that some customers no doubt ended up picking up a new Samsung Galaxy or HTC or SonyEricsson Xperia etc..
The point is, that Apple is not in the type of trouble that usually a quarterly drop in market share from 19% to 15% in three months would indicate. Apple is certain to recover most of that, perhaps all of that, in this current Christmas quarter. Apple will definitely end this year with roughly 17% to 18% market share in smartphones, which is slightly up from the 16% of 2010 and 15% of 2009. Slight annual growth in market share, one might say 'anemic' growth - but considering how bloody is the bloodbath, and how massive are Apple's profits, that is still all good. I keep saying, Apple could easily add at least half more to that market share - be in the 25% - 27% range - if it released the 'Nano' iPhone (which apparently was prototyped) but lets hope it comes soon in the new year.
Apple did as usual massive profits with iPhones and the rest of the company and is by far the most desirable smartphone on the planet right now. This temporary dip in its market share is nothing to worry about, it was to be expected and as we already have heard, the new sales of the iPhone 4S are setting new records for the iPhone. The Christmas quarter is set to be stellar for Apple.
WHEN OK IS ACTUALLY DISASTEROUS: NOKIA
So then we have Nokia's quarterly results. I will return later to discuss the overall company and Stephen Elop's management in the Nokia corporate results analysis, but considering only the smartphones, we have now the Nokia numbers too, for Q3. Nokia reported a surprising flat unit sales for its smartphones - technically 0.5% (one half of one percent) increase in unit sales to 16.8 million smartphones. Its preliminary market share fell from 15% to 14%. This could have been seen as good news for what had been a severely struggling smartphone unit in Q2. Except that we also know how that 'stabilization' was achieved. Nokia slashed its prices - setting a Nokia record for biggest decline in its average sales price over one quarter, a massive 11 Euro drop ie 8% decline in the average prices of Nokia branded smartphones.
The total revenues declined obviously, by 7% and Nokia's smartphone unit generated 130 million Euros of losses (a profit margin ie loss margin of -5.9%). This is clearly bad performance, you can't survive if you produce losses. Nokia was profitable in smartphones as recently as Q1. Elop could have focused on bringing Nokia smartphones back to profits, instead he slashed prices to try to hold onto market share. This is not long-term viable as we know, see Motorola, Palm, etc.. When SonyEricsson and LG went into generating losses, the management immediately acted to try to bring them back to profits. Elop went the other way - he cut his prices - which causes increased losses - in his attempt to hold onto market share. Isn't this exactly the same 'fault' that got the previous Nokia CEO Olli-Pekka Kallasvuo fired? For 'buying' market share? At least OPK was not foolish enough to do it by generating losses - at least during his reign the smartphone unit was safely profitable..
If you only looked at the smartphone market share, then yes, a massive drop from Q1 to Q2 was now 'stabilized' to a slight drop from Q2 to Q3 - and one might think that Nokia's situation is 'improving' In reality, as this illusion of improvement was accomplished by Nokia record price cuts - generating 130 million Euros / 170 million US dollars of losses in just one quarter (the smartphone unit generated 548 million Euro profit / 710 million US dollar profit in the last quarter before the Elop Effect). Elop is dealing with the wrong problem. He should be addressing the profitability.
Incidentially, if we only assume the hot Nokia smartphone N9 running MeeGo would sell 'only' as well as the far less exciting N8 did a year ago running the far less impressive Symbian S^3 - if Elop bothered to release the N9 globally - and we only assume its contribution was 'only' as that of the N8 - Elop would be able to add 164 million Euros to Nokia's bottom line ! So the CEO sits on the answer to turn his loss-making smartphone unit into generating profits (and all of Nokia Corporation from making a 1% loss to making a 1% profit) - remember, this is a finished product, it is already shipping and being sold - and it is made in Nokia-owned factories, using Nokia standard components and using the MeeGo OS for which Nokia doesn't need to pay a royalty (vs Windows Phone based smartphones which when they will be released near Christmas in a few countries, will not be made in Nokia's own factories, will not use Nokia standard components, and for every unit Nokia has to pay a royalty to Microsoft). Only a total fool CEO looks at his company making a loss, and refuses to sell the highly-desirable product that would turn his company back into generating a profit. Only a fool. But lets keep this with the smartphones bloodbath, not about Elop.
And on the big picture - Nokia invented the smartphone. Nokia had led the industry in its migration of its own mobile phone handset portfolio from 'dumbphones' to smartphones. Until Elop came along. Now Nokia is regressing and actually its share of smartphones sold out of the total portfolio is declining! It was at a peak of 25% migration a year ago, just as Elop was taking charge. At that time the world's migration from dumbphones to smartphones in new sales was only 21%.
Today as 30% of all phones sold are smartphones, Nokia under Elop's so-called 'leadership' has shifted so, that only 15% of its handsets sold are smartphones! SonyEricsson was just bragging that its migration rate was at 80%. Samsung is telling us that its smartphones unit is what is driving its profits. And Nokia feels it would rather abandon all that, and try to sell ultra-low-cost cheapo-phones (Nokia's overall handset average sales prices also fell at a record rate down to 51 Euros (its dumbphones average price is now 32 Euros). And this at the razor-thin margins of 2%. That is almost exactly what Dell does in PCs and Hon Hai ie Foxconn (the manufacturer of the iPhone) makes. If you like the business model of being a box-mover in ultra-cheap products, then you'll like the New Nokia. I would only comment from the smartphones bloodbath, that this is one direction that nobody could have anticipated from the company that not only invented the smartphone - but also invented the consumer-smartphone direction years before there was an iPhone. How badly has Nokia's strategic mismanagement ruined the company? I'll analyze the corporation in a separate blog but yes, the model for New Nokia is.. Dell where Microsoft makes 30% profits and Dell makes 3% profits.. Thanks, Stephen Elop..
For those keeping score, the Nokia Q3 performance in smartphones falls exactly in the middle of my two forecasts on every metric. Nokia did worse than my February forecast but better than my July forecast, and if you take the mathematical average of those two dire predictions, you get almost exactly the true Nokia Q3 performance figures, haha.. Not bad for an ex-Nokia dude who left 10 years ago and has zero access to any internal Nokia numbers, just analyzing the industry, trends and news..
Oh, Nokia for Q4? Remember Elop is refusing to sell the hot N9 in any of Nokia's major markets for smartphones. And Elop has already said that the roll-out of Microsoft Windows Phone based Nokia smarpthones will be very limited in a few countries towards the end of this Quarter, so they won't be the saviour either. Expect the blood-letting to continue and for Nokia's smartphones unit to continue to generate a loss in Q4. How big a loss will determine how little market share is lost, and vice versa. And the pain of the transition will continue all through 2012 as Nokia starts to ramp down Symbian and migrate to Microsoft Phone 7 based smartphones. The early signs of that transition are very poor, with many reports that many carriers are not onboard with Nokia and Microsoft - as I explained on this blog - that is primarily due to the hatered and fear of Skype, now 'Skype Supercharged' as part of Microsoft. So I expect tons of bad news and problems with the Microsoft strategy to come as the launch dates come closer.
Thats Apple and Nokia Q3 for us now. I will keep monitoring the bloodbath and will of course do the full market share numbers when we get all data in.