Earlier in the year at the company’s full year announcement, CEO Stephen Elop refused to offer an outlook "2012 is expected to continue to be a year of transition, during which our Devices & Services business will be subject to risks and uncertainties." (see CBR’s report here)
Nokia’s story sounds similar this time round, as the company issued some guidance for the in progress 2012 financial year. The company is struggling to shift its mobile devices, especially feature phones in emerging markets which are following developed markets’ trends towards smartphone adoption.
Nokia CEO Stephen Elop
The company is seeing falling sales in its mobile phone units, particularly in India, the Middle East and Africa and China, and declining margins across the world as the company cuts prices to stay competitive with its Android and Apple based rivals.
Nokia now estimates that its operating margin in the first quarter 2012 will be approximately negative 3%, a drop from previous estimates of breaking even or "ranging either above or below by approximately 2 percentage points".
Nokia also believes that the second quarter won’t be much better: it expects "second quarter 2012 to be similar to or below the first quarter 2012 level", for much the same reasons.
Nokia is currently in the process of ditching its inhouse operating system, Symbian, and moving to the Windows 7.5 Mango operating system on its new Lumia mobile devices. The company did shift 1 million of these devices in 4th quarter 2011 – but this remains a drop in the water compared to Apple’s 37 million.
"Our disappointing Devices & Services first quarter 2012 financial results and outlook for the second quarter 2012 illustrates that our Devices & Services business continues to be in the midst of transition," said Elop.
"Within our Smart Devices business unit, we have established early momentum with Lumia, and we are increasing our investments in Lumia to achieve market success. Our operator and distributor partners are providing solid support for Windows Phone as a third ecosystem, as evidenced most recently by the launch of the Lumia 900 by AT&T in the United States."
Nokia currently estimates that Devices & Services net sales in the first quarter were €4.2 billion, with mobile phones accounting for €2.3 billion (71 million units). It’s ‘smart devices’ such as the Lumia series and its Symbian smartphones made €1.7 billion (12 million units).
Nokia claims it sold more than 2 million Lumia devices in the first quarter, at an average selling price of approximately €220. This brings its Lumia range sales to a grand total of 3 million since the Lumia 800’s launch in November (see CBRs review of the device here).
The Windows Phone ecosystem has expanded to 80,000 applications, still a far cry from Android and Apple, which both have more than 500,000 apps available. The product eco-system is vital to the survival of any modern hardware.
Nokia claims it is now ‘quickly taking action’ and will continue to focus on accelerating Lumia sales, lowering the company’s cost structure and improving cash flow.
"We are continuing to increase the clock speed of the company," said Elop.
"The change is tangible, and we are proud of the way Nokia employees are quickly responding to the needs of consumers and partners."
The company currently estimates that at the end of its first quarter 2012, its cash was approximately €4.9 billion. It also claimed its joint venture, Nokia-Siemens contributed positively due to net working capital improvements, despite a negative operating margin of approximately negative 5%.
Nokia will provide full first quarter results and more details when it reports its first quarter 2012 results on April 19, 2012.
