Nokia Q2 Results: Bad bad and will be even more bad

So Nokia Q2 results are out and the earnings season gets into gear. We heard the carnage. Looking at it from the Digital Jamboree angle (smartphones market share bloodbath, year 3) we get the following findings

Nokia unit sales of all smartphones fell from 11.9 million in Q1 to 10.2 million now in Q2. The decline is 14%. This while the industry is expected to grow this quarter. My preliminary market share for all Nokia smartphones is 6% now, down from 8% just three months ago.

We heard right at the top of the Q2 results, that Nokia had shipped 4.0 million Lumia smartphones in Q2. While that is not the same as sales, lets not be picky, it is clearly doubling the sales of Lumia from Q1 when the level was 2 million. And so did we have a monster AT&T powered USA surge of Lumia? ...No. The total Nokia USA handset sales in units last quarter (Q1) was 600,000 total handsets which was dumbphones and smartphones, and smartphones both on Symbian and Windows Phone (Lumia had launched on T-Mobile). Now how much more do we see in Q2? Try none. Yes, the total sales of handsets by Nokia in the USA, in Q2 was.. 600,000. The only thing the AT&T massive launch marketing blitz achieved, was some transfer of previous Nokia dumbphone and Symbian smartphone sales to Lumia. Even if somehow all Nokia dumbphone sales had ended, the absolute maximum Lumia sales in the USA would be that, 600,000. Not the millions many analysts were expecting when they ooh'd and aah'd over the Amazon sales rankings haha. And this should put an end to the hype about AT&T PR people spinning the story that Lumia sales were somehow good. No they weren't. Not unless you think Nokia's recent Symbian and dumbphone sales in the USA have been 'good'. 

Lumia was designed to be US consumer-friendly. It is on two networks, carriers. Last month I did some price/sales modelling and estimated Lumia 710 sales on T-Mobile at 290,000. Now how has AT&T managed with the more expensive Lumia 900, adding definitely not more than 310,000. That is your 'success' right there. And now, after the Lumia series is Osborned by Steve Ballmer not letting the Nokia smartphones be upgraded to Windows Phone 8, we see the prices slashed (and some carriers already refusing to sell any more Lumia like T-Mobile Germany which cancelled the Lumia 900 launch altogether).

Well. But globally Nokia doubled Lumia sales (shipments) in one quarter, from 2 million to 4 million. And that migtht seem good, if you are growing organically from a clean slate, like say Apple did early with the iPhone. But Nokia is not a newcomer to smartphones. It is migrating its massive existing loyal customer base of smartphone users from Symbian to Windows Phone (Symbian's installed base - that is yes, customers currently using a Symbian based smartphone was - get this - 300 million at the start of this year. That is the customer base we are dealing with). How's that going?

I said last summer, before we had seen Lumia, that I expected Nokia to produce such a good first series of Windows Phone based smarpthones, that all during 2012, Nokia would be able to migrate customers 1-to-1 from Symbian to Windows Phone. How did Lumia fare? Not so well. All along its existence, the ratio has not been anywhere near that, Nokia is bleeding customers to rivals when Nokia attempts this transition. And again, in Q2, we have 3.7 million lost Symbian sales in exchange with the 2 million gained Lumia buyers. That means that still Nokia is losing customers and the 'exchange rate' is 1.85 to 1. So yes, two customers walk in to a store, holding old Nokia Symbian smartphones. The sales people do their thing, and in almost half of the cases, the customer won't take the Lumia, but goes to Android or iPhone or whatever rival smartphone they prefer over the Lumia.

This is disaster. And this was before the Osborning now of the whole Lumia line. But yes, lets be clear, the non Windows smartphone sales at Nokia (Symbian and MeeGo) fell quite dramatically from 9.9 million in Q1 to 6.2 million now. That is a fall of 37% in just three months. And yes, for Nokia to just have been competent in the transition, 4 million Lumia sales now is nowhere enough. Just to cover the loss of Symbian customers, Nokia should have now sold 5.7 million Lumia - and note, that would not be any kind of gain for Nokia, only holding steady. Elop's Lumia series, on the Windows Phone platfrom, is now underperforming at 30% from where it should be for an 'ok' performance level !!!

And again, this is the peak of Lumia, in this current edition. Nokia already warned that Q3 will be bad. We already hear from all kinds of markets that the early buzz around Lumia is over and the series is turning into a dud. Not to mention Nokia halving its prices etc.. So going forward, we won't see significant growth in Lumia sales into Q3, we may very well see a decline already!

To understand the context, when Elop took over, in the first full quarter he was in charge, Nokia's smartphone unit sold 28 million smartphones and had 29% market share. Nokia was twice as big as Apple and three times bigger than Samsung. Nokia's smarpthone unit was growing sales strongly - the year 2010 Nokia had seen bigger growth in units sold of its own smarpthones than Apple had with the iPhone! And Nokia's smarpthone unit was profitable, and again, the first quarter Elop was in charge, Nokia's smartphone unit generated a Nokia-record jump in its profits.

Now the unit sells 10.2 million smarpthones, the market share is down to 6%. While the industry grows strongly, Nokia's smartphone sales shrink. Nokia is now one third the size of Apple and one fifth the size of Samsung in smartphones. Nokia's smarpthone unit just generated the biggest loss Nokia has ever seen, and the guidance for Q3 is that the handset unit will have as bad a quarter if not worse!!!

I told you last summer that Nokia would hit 6% market share in Q2 of 2012 and that Nokia's Lumia series would only sell 4 million smartphones this quarter. I have since actually made a more pessimistic forecast (and luckily things weren't quite that bad) but remember - last summer many big analyst houses were promising you that Nokia and Microsoft would become the third ecosystem and have over 20% market share this year haha. That won't be happening. I said in that forecast that Nokia ends this year, in Q4, at 3% market share. Now with the sudden and totally unexpected Osborning of the whole Lumia line, I am certain Nokia's market share will be 2% at the end of the year, not 3%.

Needless to say, the fall from 29% to 6% in 18 months is a world record in collapse of a market leader of any global industry leader, ever. Nokia has thrown away 4 out of every 5 loyal customers it held only a year and a half ago! Yes, we are witnessing history being made - history of the worst CEO of all time (And it will only get worse in Q3). Pay attention to this, this is the classic case study for MBA's of the future to study how not to destroy your company, using methods like the Elop Effect.

I will be returning with more analysis later, I now gotta go catch my plane.. 

UPDATE 20 July - I have just posted the follow-up blog, with deep analysis including regional splits of smartphone vs dumbphone sales, average sales prices, an estimate of AT&T USA Lumia sales, the regional split of Lumia etc. See the deep analysis for more. 

Comments

[vladkr]

Tomi:

You forgot that Canada is part of North America :

- Rogers sells Lumia 710 and 900 (+ few symbian phones)

- Telus sells the Lumia 800,

- add few smaller carriers (Videotron for instance) which sell Symbian smartphones (501, C5, C7, E73...)

- and oh... just found out Videotron sells Lumia 710 as well (they collaborate with Rogers actually).

So, the 600K smartphones sold in North America are for AT&T, T-Mobile, Rogers, Telus, Videotron, and few others I forgot)

It's still interesting that NSN, which Elop wanted to get rid of, saves the situation a little.

[Irek]

Nokia shares are up 15% in pre-market!!! WTF!?

[Stoli89]

Your last revised 2Q2012 forecast for Nokia smart device sales (8.4 Mio) undershot the real mark (10.2 Mio) by 21%.

Are you proud of this estimate?

[Matti]

Tomi yuo seem that have missed the crashing ASP on Lumia devices.

"The ASP of our Lumia devices in the second quarter 2012 was EUR 186,
compared to EUR 220 in the first quarter 2012."

They got that 4 million with aggressive price cuts and incredibly wastefull marketing.
http://www.tietoviikko.fi/kaikki_uutiset/nokian+lumia+900n+markkinointi+tuli+kalliiksi++370+euroa+puhelinta+kohden/a822858

[Hpeters]

Nokia is fucked

[Kenny]

Units shipped and sales are not the same. Units shipped include all returned units which in the case of the Lumia is very high and for Lumia 900 is super-high. From what I gather in blogs and Nokia support forum, many U.S. buyers had to change their set 2-3 times before they can get a decent working model or accept some defects.

Of the 600,000 units shipped to N. America and after deducting dumbphones, Symbian phones and Canada sales how many Lumias are actually shipped to U.S.? I think 300,000 is a pretty generous figure. If we deduct returned units the figure may well be halved - a miserable 150,000 Lumia actually sold in U.S.

[zlutor]

@Tomi: actually the '4million' is sold, not shipped only - according to http://mynokiablog.com/2012/07/19/nokia-conference-call-details/comment-page-1/#comment-618940

[Kenny]

No, zlutor, from the actual source here: http://www.results.nokia.com/results/Nokia_results2012Q2e.pdf

On the first page,
Commenting on the Q2 results, Stephen Elop, Nokia CEO, said:

"We shipped four million Lumia Smartphones in Q2,and ..."

[Kenny]

Oh yes, units shipped also include unsold units.

[Ovidio Morales]

@Vladkr: Actually, Mexico also forms part of North America... :) So those 4 million are spread even thinner.

[zlutor]

@Irek: believe or not it happens in recent announcement days of quarterly results. Usually it lifts 15-17% up in one single day (announcement is done) and fall back in the coming day(s)...

Reason? Stock market sharks... ;-)

[zlutor]

@Kenny: yes, I've read the result. But I attached a link to MyNokiaBlog where they refer to the conference call made after the announcement...

[vladkr]

@Ovidio:
You're right, I'm sorry I didn't count Mexico as I don't know if it's included in Nokia's North American or the Latin American figures.

By the way, you point out an interesting question:
are the Caribbean islands (Bahamas, Trinidad&Tobaggo, Dominica Republic, etc.) included in North America?

I know it usually doesn't change much, but when figures are as low as 600K units, the question deserves to be asked.

Ok, I stop trolling, the situation is critical enough :)

[zlutor]

@Irek: BTW it clearly shows how pessimistic investors are towards Nokia. Even less - but still huge - quarterly loss could boost the share price.

OK, it is just a one-day-miracle but still...

[Irek]

@zlutor: yep, the market expectations were a lot more pessimistic and priced in accordingly, hence the jump. The thing to consider now: is nokia underpriced? Could this be the right moment to buy Nokia shares again. I don't think that Nokia will seize to exist any time soon, so there's got to be a bottom. Is it now? Food for thought.

[J.O. Aho]

With this bad sales for Nokia and it's Lumia line, I think Jolla Mobile will have the good chance to overtake Nokia in some markets maybe as Finland and even in China, when it comes to smart phones.

At least I will consider a Jolla device as my next one, if not that then it's a Tizen.

[khim]

Guys, can you please, stop this silly nonsense about "sales" vs "shipments"? This is just a marketingspeak.

From Apple's 10-Q SEC form: "Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, peripherals, and service and support contracts. ... For most of the Company’s product sales, these criteria are met at the time the product is shipped."
http://investor.apple.com/secfiling.cfm?filingID=1193125-12-182321&CIK=320193

Nokia does things similarly. The fact is: ALL companies report shipments as sales. No exceptions. This means that you should take the numbers with a grain of salt (Apple tries to keep inventory as small as possible while some other companies sometimes "stuff the channel") but these are the only numbers you can actually get. Everything else are guestimates.

[HHEriksen]

Regarding the shipped/sold details in the Nokia Q2 report, the Elop quote says 4M units SHIPPED, but a later explanatory paragraph states 4 million units SOLD.

[note]

http://seekingalpha.com/article/732691-nokia-management-discusses-q2-2012-results-earnings-call-transcript?part=single

[Steve]

http://yfrog.com/mnm06lp