Sheer Misery! Nokia Q4 numbers end year with disasterous numbers

This was traditionally Nokia's best quarter, the Christmas Quarter. Nokia has focused time and again, to make sure the new phones are all available and the production line is well prepared to handle Christmas sales. It is traditionally the quarter where Nokia recovers from what usually is the worst quarter, Q3 of any year. This year it all went 'pear shaped' for Nokia.

I will do the quick numbers blog first, and then will return with some deeper thinking about the why and what we may read in this. I did not see Q3 as a bad sign for Nokia. I do see Q4 as disasterous for Nokia. But yes, I will come back to blog a separate article of why I think so now.

So first the numbers. Nokia reported Q4 numbers and they sold 123.7 Million total mobile phones in the quarter (smartphones and dumbphones). That gives a rough quarterly market share of 26% (down from 28% in Q3) and for the full year Nokia finishes selling 459.5 Million mobile phone handsets - for the first time in more than a decade, Nokia ends the year selling less than 30% of all mobile phones sold worldwide. While still far bigger than its nearest rivals - Nokia is almost as big as nearest rivals numbers 2, 3 and 4 combined (but not quite) and ends the year with roughly 29% market share. Samsung is a distant second with roughly 18%.

Nokia was able to raise its average sales prices for Q4 for dumbphones, for smartphones and for all phones, but still in all of those areas, has the lowest average prices of the major players in the industry. Nokia managed to improve its profitability somewhat from Q3. But those are not going to help where Nokia is losing the 'main war' which is for smartphones. It posted a miserable quarter for smartphones.

In smartphones Nokia sold 28.3 million smartphones in Q4, which is up from 26.5 million in Q3 (an anemic increase of 7%, where Apple and RIM both grew 15%, and HTC, Samsung and Motorola grew between 29% and 50% in just one quarter. The industry grew about 25% from Q3. Nokia is clearly - by a wide margin - the worst-performing major smartphone maker, and falling behind very badly right now.

This is while they released their 'iPhone killer' the N8 (which obviously is not sold as an iPhone killer, but happens to match the specs and looks and style of the iPhone). Nokia didn't even dare to announce how many N8 phones they actually did sell - but all three Nokia phones using the latest touch-screen version of Symbian OS, called S^3 - sold a total of 5 million units. The two other devices are cheaper but sold less than the full quarter. I think its fair to assume the N8 sold far less than 4 million. Meanwhile the 'real' iPhone sold 16.2 million units - at least 4 times better. Samsung's Galaxy series - similar form factor touch screen devices - sold 5 million units in Q4. This, the N8 was celebrated as the phone that would reverse the losses, that were caused by the 'failure' of the N97 as their previous flagship smartphone.

Nokia ends up the quarter with about 28% market share in smartphones, and the full year with about 33%(all the 'about' numbers are because we don't yet know the final numbers as reported by the major analysts, for the full industry Q4 sales, when we do, I will post the final market shares for all major players as usual on this blog).

Nokia could celebrate that they (barely) passed the 100 million smartphone annual-sales level - selling 100.3 million smartphones and yes, Nokia is still by far bigger than its nearest rivals - bigger than its nearest two rivals (RIM and Apple) combined. But that is only for the full year. By Q4, that is no longer true and if this pattern continues into 2011 - and there is every reason to think it will - then Nokia will continue to bleed market share and its rivals will soon start to snatch at Nokia's heels.

Thats where we stand. The Bloodbath Year 2010 was rough for Nokia. If you remember to my forecast for the year, I predicted a year ago that Nokia would end the year losing market share modestly, and thought it would end with at least 35% market share. They end with 33%, so I was off by two market share points from my lower end of the scale, more than 4% from the mid-point of my range. Obviously its a tricky business, forecasting, you never get all of it right.

So there is the Quarterly and Annual review for Nokia. I will come back with the full Bloodbath year results looking at all players when we have the full numbers, early in February. Also we will eventually have full Symbian numbers (not in the results today). I will also write a separate analysis of what I think is happening, why Nokia is doing suddenly so badly. I do think there are systematic issues that need to be addressed, and as usual, some may not be things you the reader may have considered. I'll go write that blog now, hope to have it up within a few hours still this morning my time.

Update Jan 28 - I have written a follow-up to this blog, analyzing why Nokia has lost its popularity, examining some of the causes and recent decisions. You may also want to read the comments, very good additional info from many readers there in over 40 comments already. Undesirable at Any Price: What Happened to Nokia?

Update Jan 29 - and I added a second posting. it bugged me that this is so sudden crash in market share. We don't see this normally in any industry, not even when Sony laptop batteries explode or Toyota cars have faulty brakes or Sprint-Nextel abuses customers by firing the 1,000 who complained the most. Even in those cases the market share losses is about one tenth of their market, not one quarter, and never so fast. So I wrote a follow up looking for the 'culprit' or the 'villain' and its a good 'whodunit' mystery and the cause it not what you think! Go read Sherlock Holmes and Hound of The Nokiaville.

Comments

[Sami]

Before you get to the Symbian number analysis, let me preempt you and offer my $0.02; Nokia is suffering in smartphones because the user experience of even the latest Symbian incarnation is far behind competition. Exaggerating only slightly, developers have long ago lost all interest in Symbian, and consumers who try other platforms are now following suit. Very few people who have switched from Nokia to, say, HTC or Apple have switched back. The most common statement I hear is "Why didn't I switch much earlier?!".

Even worse, Nokia still doesn't have a credible plan for MeeGo. Their flagship platform is a badly leaking, even sinking, ship and the lifeboats are still in the workshop. Not exactly a brilliant position..

It's funny reading the Finnish media's reactions to the results; they focus primarily on the reduced profit with few mentioning the smartphone sales numbers. Many are also trying to grab to as many positives as they can find ("NSN beats revenue estimates by far!", "Nokia still ahead of Apple's phones in revenue!" etc) *sigh*

[Yuri]

Sami, I don't think that user experience is the main culprit here. It is definitely important and if Nokia have gotten it right one year ago it may have been enough.

Now the problem is that Nokia's smartphones don't capture the imagination of users and developers anymore. It is not going to be enough to just do good UX anymore. Apple and Android have have covered this base long ago and playing catch-up is not going to get Nokia very far.

Nokia needs to come out with something innovative that matters to users. A 12MPix camera does not matter enough over 8Mpix cam.

If they come out with an elegant water resistant (and rugged) device - that will be a block buster (Moto Defy doesn't really qualify, it has to be something like the iPhone 3/4 or Nexus One, but water resistant).

Another great feature is a good transflective screen.

If they do just an OK device, something similar to the iPhone or the top-tier Android devices, then they need a superb marketing campaign.

[enyibinakata]

As a Nokia fan, I HATE to say this, Nokia is in trouble, big TROUBLE.

I walked into a carphone warehouse shop in the City of London yesterday and overhead the sales assistant advising a Nokia customer to choose an iPhone or Android device over the Nokia Symbian^3 C7 phone as Nokia's UI was outdated and available apps meagre compared to the competition.

The N8 is great hardware and Symbian^3 is a rock solid OS but the interface - ugh so UGLY. I use a Nokia 5800XM (for the excellent sound quality) and there is not much difference b/w its home interface (same old stupid Options and Exit soft buttons and clunky menus) and that of N8. I nearly puked at the sight of this and could not even bear to check out the famed camera. Then there is the issue of core apps, the browser on Symbian^3 devices is such a joke, I cant believe Nokia approved that garbage for release. I mean at a time when the smartphone is more about software than hardware, what daft manager at Nokia approved of this dated browser which pales in comparison to the competition as to be from the dark ages. I tried launching a web page on the C7 and it crashed ingloriously. I wont even mention the virtual keyboard - are these people at Nokia sick or what.

Now heres a mystery, I also have the N900 and its absolutely fab and shows what Nokia can do when serious - trust me Apple and Google are no match for Nokia even in the high end software department. Maemo OS is excellent and its browser is without equal. The UI is different - so much so that Google's Android honeycomb borrows a lot from it (virtual buttons etc). I await the entrance of Meego devices and hope Nokia accelerate the pace. Nokia's feature phones are excellent too,the c3-02 is about the sleekest phone I've seen in a while. So its begs the question, why not play to your strengths Nokia or are you playing a game here ?.

Tomi, with due respect, you don't seem to relaize the magnititude of the paradigm shift that has occured in the smartphone realm; its all about software now not hardware. The days of hardware heavy hitters like the fabled E90 is OVER. Nokia should focus on software, they have the best hardware. Fixing Symbian UI must be priority and they should stop skimping on memory and CPU (Symbian is very efficient but at this stage of the game, every little helps)

Nokia will keep the diehards like myself who actually value hardware but it will have a hard time attracting the iOs and android crowd.

I am sticking with Nokia as in my opinion they make the best hardware - RF, camera, durability etc and core software (Symbian multitasking flogs iOS and Android like they stole something). All they need to do is fix the UI which is all the more baffling why they cant just do so when Opera and other third party vendors continue to produce good looking apps on Symbian.

What an ENIGMA Nokia is !!. Tomi, what happened to the Sisu ?

[Yuri]

A feature that will help distinguish Nokia's platform (one that captured my developer imagination) is a bundled free map SDK with every smartphone. A map component that is guaranteed to work offline is a powerful thing.

[KDT]

And to piggy back on what Lee said....

A quote from Nokia:

"In addition to great device experiences we must build, capitalize and/or join a competitive ecosystem. The ecosystem approach we select must be comprehensive and cover a wide range of utilities and services that customers expect today and anticipate in the future."

I along with others have been preaching the "ecosystem" sermon for the longest. The iPod Touch and the iPad both strengthen the iOS/iPhone ecosystem. But just as when anyone brought up profit, this blog is downright hostile to the mention of anything that is not a phone. Android, BlackBerry. and even HP with Palm are all trying to expand their ecosystem to include either tablets and/or phoneless phone equivalents.

I'm still afraid that you're living in a pre-iPhone world if you think hardware is driving sells. It's all about the software. Apple will never release a device less capable than 3GS. Apple may go down market but only when technology allows them to create a good experience on lower cost devices.

[Jouko Ahvenainen]

Tomi, excellent analysis as always. But I must disagree one sentence: "why Nokia is doing suddenly so badly". I think this is not suddenly, this is a trend and development that has happened longer time, but because of their strong position and distribution channels etc, it has take quite long time that it is really significant in numbers.

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