Nokia reports $1.4B loss despite strong Windows Phone sales

Handset maker posts its third consecutive quarter of hefty losses, despite strong initial sales of its Windows Phone smartphones in the quarter.

Nokia CEO Stephen Elop shows off the Lumia 900 at CES 2012
Nokia CEO Stephen Elop shows off the Lumia 900 at CES 2012. Lori Grunin/CNET

Change is never easy. Just ask Nokia, which today posted its third consecutive quarter of hefty losses, despite strong sales of its new Windows Phone portfolio.

In the fourth quarter, the Finnish handset maker said it lost 1.07 billion euros, or $1.4 billion. During the same period a year ago, the company posted a 745 euro profit.

Overall handset sales dropped by 29 percent compared with a year ago. The company sold 19.6 million smartphones during the quarter and 93.9 million feature phones. In total, it sold 113.5 million devices, which is down from 123.7 million total devices in the fourth quarter of 2010. Nokia also saw prices for its handsets fall. The average price for a handset in the fourth quarter was 53 euros compared with 69 euros a year ago.

Profit margins also fell considerably on mobile handsets to 3.4 percent. A year ago, Nokia reported profit margins of 12.7 percent on devices. And in the third quarter of 2011, it reported 12.1 percent.

On the bright side, the company's new Lumia smartphones that use the Windows Phone operating system are selling well. Nokia CEO Stephen Elop said in a press release that the company has already sold well over 1 million Lumia handsets since the introduction of the product in October. The company noted its plan to offer the Lumia series of devices in additional markets, including China and Latin America in the first half of 2012.

"In the war of ecosystems, clearly there are some strong contenders already on the field," Elop said in a statement. "And with Lumia, we have demonstrated that we belong on the field."

Nokia, once the worldwide leader in cell phone sales, has seen sales slip since the introduction of Apple's iPhone in 2007. Google's introduction of the Android OS only made things worse for the company. Last February, Elop, the newly appointed CEO, announced that the company would abandon its older Symbian operating system and adopt Microsoft's Windows Phone platform for all new smartphones. The company lost several months of momentum as it switched gears. It's just started churning out products again.

The company launched the Lumia line of devices in October in Europe with two devices, the Lumia 800 and Lumia 710. Nokia began selling the Lumia 710 this month on T-Mobile USA. It's gearing up for a big push in the U.S. with the new Lumia 900, which will operate on AT&T's network. Elop said at the Lumia 900 launch at the CES show earlier this month that the company will be aggressive with pricing on the new devices to entice customers.

And yesterday there was a leak that Nokia will offer the new Lumia 900 , which is the first LTE Windows Phone device, at $100 with a two-year contract. The new device will go on sale in March.

While it seems that the Lumia line of devices is gaining traction, Nokia still has a long way to go. Aggressive pricing may give the company a tiny foothold in the U.S., but it's clear that the transition away from its older Symbian operating system to the new Windows Phone platform has not been easy.

During a conference call with analysts, Elop noted the difficulties the company faces. Nokia is in the "heart of its transition" right now and will continue to be in transition through 2012, he said. But Elop added that he believes the company's long-term potential is still there.

In the U.S. market, he said, carriers are highly motivated to promote a third ecosystem or alternative to the Apple iPhone and Google Android choices already available. He didn't announce further products, but he hinted that Nokia may eventually offer other devices that will leverage Microsoft's software.

"You can see the commonality of experience across handsets, PCs, and tablets that Microsoft has created," he said. "And operators see the opportunity to participate in that ecosystem in a larger way. So we'll see how that plays out over time."

Nokia also pointed out that it has received the first of many quarterly payments from Microsoft as part of the companies' strategic relationship, which totaled $250 million in the fourth quarter. This payment and future payments will help fund Nokia's product development for the Windows Phone platform.

Meanwhile, Microsoft also licenses technology from Nokia. Executives have noted that they expect the two companies to transfer billions of dollars in payments to each other over the next several years as a result of this relationship. Nokia's executives also noted the portion of this initial payment from Microsoft was not significant enough to affect the company's gross margins.

Nokia and Microsoft are working together to get the cost of the devices as low as possible, since that should help spur adoption. And Elop said he's already seen the fruits of the labors paying off in the U.S. at T-Mobile, where the Lumia 710 is priced at an attractive $49.

But where the company is likely to struggle over the next several quarters is in the traditional Symbian business. While Nokia has shifted its smartphone business to Windows Phone, it has promised to maintain Symbian through 2016. But changes in the marketplace have resulted in slower sales of Symbian devices, Elop noted.

"Changing market conditions are putting increased pressure on Symbian," Elop said in a statement. "In certain markets, there has been an acceleration of the anticipated trend towards lower-priced smartphones with specifications that are different from Symbian's traditional strengths. As a result of the changing market conditions, combined with our increased focus on Lumia, we now believe that we will sell fewer Symbian devices than we previously anticipated."

Update at 6:35 a.m. PT: This story was updated with additional details from the company's conference call, including comments from Nokia's CEO.

 

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