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« News from the Smartphone Front: Blackberry Results, other news | Main | Nokia Q2 Analysis - This is Textbook Comprehensively Failed Strategy in Numbers »

July 18, 2013

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Peter

I think the biggest problem is the collapse from high end Lumias from 5.6 million in q1 to 2.4 million in q2. The have sold about 4 million 520/521 in q2. I have done the math here http://www.telekom-presse.at/Nokias_schwache_Verkaufszahlen_sind_negatives_Vorzeichen_fuer_Windows_Phone.id.26560.htm
These 520/521/720 are sold on price which is not sustainable. WP8 is undesirable otherwise the numbers for the high end would not have collapsed so much.
What do you think Tomi?

AndThisWillBeToo

Just because I hate misinformation:
"this is the first time since 2011 that Nokia reports a quarter-on-quarter increase in smartphone unit sales."
I call this BS.
6.3M in Q3 2012
6.6M in Q4 2012
Please fix.

John Fro

I think the proper question is how are the prediction from here holding up?

Tester

>> These 520/521/720 are sold on price which is not sustainable.

I think that's the major point here that deserves attention. So, yes, Nokia sold more phones - but the way it was achieved brought them nothing but more losses. This is a strategy that just can't work.

chithanh

>> These 520/521/720 are sold on price which is not sustainable.

I think that extending Nokia's offering into the low cost segment is the only strategy that can grow their smartphone business to a sustainable size.

Asha full-touch sales have fallen again (from 5 million to 4.3 million), so the next objective must be a <$100 smartphone. And no, the Nokia 501 is not competitive against similarly priced Android devices.

Tester

@chithanh:

>> I think that extending Nokia's offering into the low cost segment is the only strategy that can grow their smartphone business to a sustainable size.

I'm not so sure about it. That market segment is a shark pool where everybody showing some kind of weakness is eaten alive.
It's also a segment where margins are extremely low and the fact that Nokia is still making losses on every smartphone sold speaks volumes.

Nokia doesn't need to increase volume primarily, they desperately need to improve profitability or they'll be gone sooner or later.

grantb

The Nokia 520 explains both the increase in sales (though maybe some dumping of WP7.5 devices also) and the decline in profit per unit

I needed to buy a basic smartphone with a ~4" screen earlier this month. I found here in NZ, you could buy a Nokia 520 handset on special for around NZ$250 (about US$200). That puts it less than the price of a refurbished iPhone 4 (not even a 4S) and below most mainstream Android devices. I tossed up buying the 520 or a Huawei G300, but the Huawei has not been updated to Android 4.2.2 yet (unlike my Nexus 7), so I took a punt on the 520, which I picked up second-hand for NZ$180.

I guess the theory is that they buy market share, even with a loss per unit, in the hope that people like me who buy a 520, will upgrade to a more expensive W8 phone next time around (or at least expand the eco-system and get them visible to people like my friends and family who might never have seen a W8 phone).

That seems like a risk. So far I have found W8 ok, with one big glitch that took me hours to resolve (gmail client not working), couple of nice features and a couple of annoying things (IE on WP8 is probably the worst of the mobile browsers I have used recently). Overall, I think of it as a cheap phone with reasonable hardware, poor app selection and an OKish operating system. When I look for my next phone, I would consider iOS (if my company was paying), Samsung/Android or maybe another Nokia WP8 phone if WP improves, but in no-way have Nokia brought a new WP8 fan.

In fact I keep thinking, if the 520 was running stock Android 4.2.x, I would have paid more for it.

chithanh

@Tester
You are of course right that selling phones at a loss is unsustainable.

However, in order to achieve economies of scale, better bargaining position against component suppliers, branded products in the hand of many consumers etc., the high-volume low-margin segment is important.

In the PC market, graphics manufacturers have done this for a while, selling low-end and midrange cards basically at cost. Profits come from the high-end and professional cards, which would be too expensive to develop and produce if it weren't for the mass market.

CN

@Tester

"Nokia sold more phones - but the way it was achieved brought them nothing but more losses."

More losses? How did you come to that conclusion?

Kevin

Hi Tomi, please do the math before posting. Nokia sold 5.6m Lumia phones in Q1 and 7.4m in Q2, how on earth would the smartphone sale increase be 21%??! Should be 32%,that's basic multiplication.

If you include Asha full touch phones in smartphone category,hich you obviously won't do, the fact would be 10.6 m in Q1 to 11.7m in Q2 and the percentage for increase will end up as 16%.

If you truly want to slander Nokia, just use this 16% as the increase, it looks more dismal, isn't it?

MrPetzold

@Kevin: I think Tomi compared Nokia total smartphone sales q1 versus q2. In q1 Nokia still sold 0.5 mil Symbian devices, so their total for q1 was 6.1 mil.

@Tester: Nokia's losses are decreasing, not increasing. Remains to be seen how much Lumia 925 & 1020 will change ASP upwards.

In general, Nokia's q2 was in line with expectations: Sure not great but not catastrophic either. Progress in Lumia line, nsn ok, feature phones seem to become the next big problem...well there will always be some market (30-40 mil ?) for feature phones, but margins are razor-thin :-)

jj

@grantb "In fact I keep thinking, if the 520 was running stock Android 4.2.x, I would have paid more for it."

Why the need for Android 4.2 if you accept WP8 in Lumia 520?
Even Android 2.3 Gingerbread is better and includes more features than WP8.

foo

Quick math.

Android activations are 180M per quarter.

Considering that Nokia makes great hardware, if Elop had chosen Android it is not difficult to imagine that they could have 10% of the Android share, selling 18M smartphones per quarter.

To make things worse, right now Microsoft is injecting $250M per quarter into Nokia, and the company is still burning cash. What will happen when the flow of cash changes direction?

How much money Nokia makes on each smartphone? How many they need to sell to make up for these $250M?

Mike

I keep reading how you are apparently one of the most influential people in the business. I was wondering if you were aware of how much YOU are damaging Nokia. from the way you hate on Elop, I would surmise you do in fact love Nokia, but tearing it down all the time has got to knock the confidence of the people who trust you and your opinion.
Nokia is doing some great things, build quality is still top notch and solid as is the driving innovation they bring to windows phone 8. I own a Lumia device and I think its pretty darn good - I know what it lacks, but i could tear apart any platform and say its missing this and that too. Nobody in this game really knows what works because what works constantly changes, for example:
Iphones have been identical really since the begining, but know apple recognise that people want things a little differently.
Samsung think they are on the a winning formula so are now going down the road Apple walked.
Nokia did make a mistake dropping Symbian and Meego - you cant just blame Elop - He is an idiot, Im not arguing that - but the company tops as a whole made the decision, or at least decided to follow, which is the same thing really.
So mistake done, but now we have to move forward, Symbian was really a third eco-system, even though it was 33% market share and had Nokia top of the range hardware, the prominance of Symbian sucked, as did the developer backing, it was always going to go down hill - i did own a symbian, i remember the app struggles.
So Nokia had no choice but to find a new avenue for a third ecosystem, as im guessing they just like me didnt like the other 2 (or just thought android way too overcrowded / and lame)
So inconclusion stop hating on Nokia, seriously, ever time you mention their numbers you bitch about Elop and list of everything you view as a mistake. Nokia are great designers and builders and I would hate to see them gone, and you as an influencer are pushing it that way as hard as you can. How about you be constructive ay???

I dont know what else your doing with your complaints about Elop, but i doubt very much they are being payed any attention by Nokia on here.

I would very much appreciate a personal response to this.

paul

It's funny, OPK got sacked for trying to increase market share by cutting margins. Elop has done the exact same thing with Nokia. The margin for Lumia 520's must be razor thin (and possibly negative once platform support payments are taken into account).

The platform support payments question is interesting too. If my maths is correct, then this was the 7th quarter where Nokia received a platform support payment of $250 million. If Nokia did indeed sign a 5 year deal, then we can assume there are 13 payments to come. Still 3 years left on the deal, but after next year, the clock will start ticking.

foo

@Mike "Nokia is doing some great things, build quality is still top notch and solid"

Nokia's build quality always was "top notch and solid". Just imagine if Elop had adopted an OS that also was "top notch and solid", instead of the Windows Phone 7 which wasn't ready when the partnership was announced, and became obsolete few months after the release of the first batch of Lumias.

@Mike "Iphones have been identical really since the begining, but know apple recognise that people want things a little differently."

This was one of Elop's biggest lies -- he told investors that Windows Phone would allow some kind of differentiation, but when you see all the Windows Phones available, they are all the same! The only thing that differs is the hardware, the part that Microsoft doesn't contribute directly. (Although Microsoft also tries to control hardware specs, and, thus, reduce differentiation.)

@Mike "So Nokia had no choice but to find a new avenue for a third ecosystem"

No, Nokia didn't have to find a "third ecosystem".

The partnership of the mobile giant Nokia with the mobile dwarf Microsoft could only benefit Microsoft.

@Mike "I dont know what else your doing with your complaints about Elop, but i doubt very much they are being payed any attention by Nokia on here."

I think that the Nokia tale is one of the biggest business stories of all time. It must be described in strategy books, to show how one incompetent CEO can destroy a company future in one year.

There are so many lessons to be taken that I seriously hope that Tomi is going to write a book about that.

This book should be a must-read in all business schools around the world.

ejvictor

This is All you need to know About the Great Master Plan!

Mobile devices by Geo. YoY
Europe 11.3 15.3 -26%
MEA 16.6 19.4 -14%
China 4.1 7.9 -48%
A-Pac 20.2 28.6 -29%
N.Am 0.5 0.6 -17%
Lat Am 8.4 11.9 -29%
Total 61.1 83.7 -27%

Mike

@foo how different do u want ur phones to be? how different are any phones... i was pointing to the iphones identicalness, largely meaning really the same size, smaller than most others, hence the iphone5.

@foo they did need to find a third ecosystem. DID. there is noway into the I ecosystem, and the driod market is so full its even killing another good manufacturer, HTC, they make some decent stuff, but there is just too much droid competition that HTC lose and lose money, no matter how many they are selling atm, i dont know if this is coz they r burning thru cash on R&D so it only looks real bad or rly is.
But the world needed a third ecosystem, maybe it should have been symbian, but iv already pointed out the problems with that, may sailfish or jolla or one of the other emerging little guys.
but windows phone 8 is the third ecosystem just now, it is gaining momentum, it is pretty damn good.

Unfortunately: now let me use another industry as an example, no matter how good and amazing a particular movie maybe, if the critics slam the hell out of it, it invariably loses shed loads of money because people trust these critics, and have there vision coloured by it.

Simon

@paul

According to JPMorgan, Lumia 520 has a gross margin of 23,7%. That better that Lumia 920's 23,5%

foo

@Mike "i was pointing to the iphones identicalness, largely meaning really the same size, smaller than most others, hence the iphone5."

Differentiation means being different from your competitors. Apple fights with all forces -- including patent law -- to guarantee that their products have something unique.

Elop opted for an OS which doesn't allow any differentiation between competitors. Not only that but he actively encouraged competitors to join the "third ecosystem". That's crazy!!!

@Mike "they did need to find a third ecosystem. DID. there is noway into the I ecosystem"

That's what Elop says now, having the benefit of hindsight.

Now, consider for one moment that Nokia makes some of the most beautiful devices available. Couldn't they compete with Samsung using Android?

If you say that Nokia couldn't compete with Samsung using Android, how could they possibly compete using an inferior OS?

@Mike "But the world needed a third ecosystem"

I don't think so. Microsoft needs to buld an ecosystem, so it won't loose the OS game -- that's how they made billions, remember?

Android is open source, you can't have something better than that. Companies can adopt and fork Android, or contribute to the code base. That's a much healthier ecosystem than the ones controlled by Apple and Microsoft.

@Mike: "no matter how good and amazing a particular movie maybe, if the critics slam the hell out of it"

I agree that Nokia makes beautiful devices. Too bad they come with Windows Phone.

Betting the company on a single unproven OS and killing all the alternatives proved to be a terrible strategy.

Sam

@Mike the problem really comes down to the brands and their image. It's not that people hate Nokia, it's that people hate Microsoft, and as Nokia has partnered with Microsoft the hate will also come down to Nokia's devices. That's the way it goes when you do a co-branding and here we have the worst case scenario in real life.

"Considering that Nokia makes great hardware, if Elop had chosen Android it is not difficult to imagine that they could have 10% of the Android share, selling 18M smartphones per quarter." With this option Nokia wouldn't have the co-branding problem and would probably do lot better right now.

We can also see the same problem in PC-industry, PC sells are going down, but it's not because of PC manufacturers, it's because of Microsoft and Windows.

As has been pointed out that Nokia has to live with this problem for 3 more years (if it lasts that long) because of the agreement with Msoft.. Hopefully after that Nokia is still there and could provide consumers some other OS.

jj

WP third ecosystem? No way! After NSA scandal no one outside USA wants another closed US based OS. World needs open system as third ecosystem, not even Android is open enough.

vladkr

@Mike :

Nokia USED to have great designers, Nokia USED to have great engineers, Nokia USED to have great builders, but they either fired them, or let them go.

Now recycling N9 design year after year, using 2 years old technos don't tell us much about competence in design at Nokia right now.

As about WP, even Bill Gates admit it as a failure. Microsoft is already preparing a new version from scratch. Will Nokia have enough time/cash to survive until this saviour version of WP? Could be, but I'm not quite sure.

Maybe WP is a brilliant platform, and Lumia a brilliant band, but for some reasons, most people in the world prefer other brand/OSes... maybe that's because most people in the world are stupid and don't know what's good.

ejvictor

@Mike, @ vladkr... the state of Nokia's R&D


Devices & Services non-IFRS research and development expenses decreased 37% year-on-year in the second quarter
2013. On a sequential basis, Devices & Services non-IFRS research and development expenses decreased 8% in the
second quarter 2013. The year-on-year decline was primarily due to reductions in certain Mobile Phones-related activities, ramping down Symbian and MeeGo research and development efforts and overall cost controls

Baron99

@ALL,

I see that Elop & Balmer already pop the champagne and declaring that they manage to be the THIRD ecosystem/platform/OS/whatever. But in BB defense, if we compare nokia 1st and 2nd quarter of WP8 (or WP7) to BB. BB is in a better situation.
(I really miss Mrs. Baron95. LOL)

But,
Does any of this really matter?
Does it really matter to be number 3 in two horse race?
Both WP (nokia) and BB were bleeding to death.

But.... again....
Even apple were starting to see the Cliff.
3 Russian operator were quitting the relationship from apple (read: removing the apple parasite).
1 American operator were reported having the hard time to clear the iphone stock, and will soon dump the phone and I think it will dump the iphone into the market with heavy subsidies if apple refuse to renegotiate... in which will ruin apple product value.

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