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

[jo]

n9 shipped millions , it sold on carrier in latin america, china and smaller market

but it sold what it was expected to sell.

i mean it was release in china mobile due a deal pre elop, that first meego phone was going to be sold in there.

and it had one popular "big" yet not expensive CM, with a popular chinene actres.

its pretty clear is nokia pushed meego and nokia air, windows phone would be not even 5th ecosystem, microsoft couldn't allow that to happen so they send their troyan.

what scares me how finland goverment or EU can't see this as troyan-

microsoft is getting everything from nokia, and nokia only gettting meaningless 250m

[Nata]

@ former N900 owner
Lumia 800 reusing N9 design? Hardly! It reused the external casing, but then full stop. It's even based on a completely other chipset manufacturer, so hardware and software was all new.

@ jo
If N9 sells millions they also have to be made in millions. Where do they come from, at least not from Salo anymore.

Another simple fact. A company making red figures will certainly take every dollar it can, especially with N9 targeting a very different segment than WP buyers.

[former N900 owner]

@Nata
The Lumia 800 used the N9 exterior design. The software was completly different and it had another chipset. But my point is, that it wasn't a completly innovative product at all. The design was already there and the inside was solid not outstanding.

So I don't see on which point we disagree.

[Huber]

@former N900 owner:

I can see Windows 8 Tablets being a success in the business environment, since it runs on x86 Hardware and hence can easily be integrated into existing company infrastructures.

So instead of spending $400 or $500 on an iPad or Android tablet and then integrate it into your IT infrastructure, it is most probably cheaper to buy a Windows 8 x86 tablet for $ 1,000 and reuse the already-existing tools and software.

But for consumers it is probably too expensive and too heavy.

Window RT OTOH with its ARM SoC is not interesting for businesses, but for consumers. But here iOS and Android are already established, with solid App support etc.

Additionally, lots of customers will assume Win RT is able to run existing software, which it is not. This will lead to lots of dissapointed users, especially when they recognize that not only existing Software doesn't run, but Win RT lacks in Apps, too.

Win 8 on desktops/ notebooks is just a joke, users won't like to learn handling a new UI just because it is new and different. I personally will skip Win 8 on my PCs.

WP8 will also fail in the market if MS continues to copy Apple's wallet garden approach. Only Windows fanboys (or clueless customers) will buy them.

Only if WP8 is a tremendous enhancement to WP7 MS has a slight chance. But even then, most Apple and Android users will stay in their ecosystem, especially those who already have bought lots of Apps.

[zlutor]

@Nata: AFIAK N9 was/is manufactured in China as well...

See http://forums.internettablettalk.com/showthread.php?s=0eaa81d3165dfc8281b7eaf16b1cfed8&p=1160556#post1160556

And L800 obviously uses N9 (external) design...

[m][sko]

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

I don't think that elop is aver difference between WP7 and WP8
He want to do both in future.
But there is one problem you can do stuff in C/C++ on WP8 (you can port apps/games more games from iPhone/Android) to WP8
but you can't do same to WP7. For WP7 it is much more work to do C/C++ to C# is s.. And it is much slower in C# XNA.
No one on this world will make A-title for WP7 in C# XNA.
No unreal engine, ... on WP7

Stupid home screen don't help anything
Most people want phone that can do something even if they never try it

[Jolla]

Saw a couple of good articles on Nokia-Microsoft.

Go to semiaccurate dot com.

Jul 16, 2012
Desperation forces Nokia to cut Lumia price in half

Jul 3, 2012
Microsoft does not have a mobile strategy

-----
On the tablet market, Microsoft is facing a rebellion from major OEMs, in retaliation over the Surface announcement:

Jun 29, 2012
HP said to dump Microsoft over Surface

I recall earlier this year, someone said that Nokia is going to make (Windows?) tablets. Uh-oh.

Stephen Elop is utterly destroying Nokia from within. The members of the Nokia board are also nothing more than cowardly sellouts.

[Kenny]

Nata says, "Another simple fact. A company making red figures will certainly take every dollar it can, especially with N9 targeting a very different segment than WP buyers."

Sorry, Nata, not when it comes to Elop. He wants no success other than Lumia. The way he suppressed N9 from the beginning by pronouncing it a dead OS and banning it from major markets tell the whole story. Even now, N9 has been withdrawn from most European markets. Another example, why isn't Nokia promoting its Pureview 808 which has captured lot's of users' interest? Nokia is treating Pureview 808 like an illegitimate child to be hidden away and sold quietly in shame.

[Alex_Ramires]

Hi all,
I'm particularly interested about 400mln.euro IP prepayment. Is this payment a result of patent selling as WSJ claimed or it is a royalty prepayment? Without this 400 mln euro the Q2 report just one horrible thing. Let's count Elop's Nokia lost 379 mln. euro. Since it was also subsidized (thanks to another MSFT moron) in amount of 250 mln. usd the actual loss is about 600 mln. euro. That's a huge price to push WP project but people still don't eat it. Back to 400 mln. euro IP payment, is Elop selling all of Nokia to promote WP and make himself look better? In terms of Q2 report it is called "cash preservation" but rather looks like devouring of Nokia by MSFT virus.

[Carpenter]

There is an interesting comment in Asymco. If true, the actual report should be read very carefully.

http://www.asymco.com/2012/07/19/how-many-lumia-phones-were-shipped-in-the-us/

Samuli • 8 hours ago −
Hi Horace, I'm bit worried about that can you calculate correctly Lumia device shipments in North America region. In Nokia's Q2/2012 results, Nokia calculates IPR revenues to be part of income for Devices & Services unit. And in the results, there's interesting note: "The following table sets forth the net sales for our Devices & Services business for the periods indicated, as well as
the year-on-year and sequential growth rates, by geographic area. IPR royalty income is allocated to the geographic areas contained in this chart." (http://www.results.nokia.com/r... at the end of page 6).
If I read this correctly, this means that 128 million euros, what Nokia reported for Devices & Services North America net sales for Q2/2012, includes also IPR revenues.

[Alex_Ramires]

Baron95, thanks for the clarification. Probably Nokia has to buy one of those trolls. I am Nokia long and that is because their products use to be an appealing combo of quality and value. Hope Nokia will survive. Elop & Balmer have to go.

[Spema]

Nokia stock is down to 1.70 ... Like I guessed it was a rebounding dead cat.

Hahaha!

Shipments is not the same as sales, haven't been and won't ever be. Nokia has saturated the sales channel with phones and those are not sold but just shipped! There is a huge surplus of unsold phones in the retailers storage rooms.

[Matti]

"I'm particularly interested about 400mln.euro IP prepayment. Is this payment a result of patent selling as WSJ claimed or it is a royalty prepayment?"

It's most likely somekind of unregular IP payment. Propably from Apple.

It can't be any major IP sale, because Nokia would have legally had to tell shareholders about that. Its unlikely to be any "normal" IP payment, because Nokia has traditionally arranged to get major royalties from improtant patents (GSM, LTE etc) during Q4.

[Eduardo]

@Baron95

Thank you for the reply. I asked a serious question, and you gave a serious answer.

"As for market share, I think Windows 8 will take 5% smartphone share and 10% mobile computing (including tablets, etc) share by Q4/2013.

My guess is WP8 is going to do worse than you think, but perhaps I am wrong. But even if you are right, 5% is an awfully small third ecosystem.

"I think Windows 8 phones share will be split roughly equally between Nokia, Samsung, ZTE and HTC by Q4-2013."

That would be 1.7% market share for Nokia. How many employees would it have to fire, and how many other assets would it have to sell off, to survive at that level?

I am actually Eduardo, sorry for the typo.

[J.O. Aho]

@Eduardo:
I don't think Samsung, ZTE, HTC or anyone else will be making a lot of advertisement for the few wp devices they may make, so they will not get that much market share in that segment, as they have more profitable products to market. Today they have somewhere around 0.2% of the market share if looking at the microsoft based devices which makes ma doubt that they will be selling any next year.

When it comes for tablets, I think microsoft will have big difficulties as they alienates their traditional desktop/laptop partners.

WP8 on desktop will most likely drive a big chunk of customers to OSX, as a huge part of the users seems to dislike how metro works.

[Nike NFL Jerseys 2012]

But 'if you have a loan in the bank or an outside investor, something like this is well worth considering, ' he says.

=