Nokia has best quarter for Lumia smartphones sales, trims losses

Sales were down 24 percent year-on-year

Nokia sold 7.4 million Lumia smartphones in the second quarter, its best yet for sales of the Windows Phone devices, but still made a net loss.

Net sales totalled a!5.70 billion (US$7.48 billion), down 24 percent year-on-year. The company reported a net loss of a!278 million, smaller than the year-earlier loss of a!1.53 billion.

During the quarter, Nokia sold 7.4 million smart devices, its term for high-end smartphones, almost all of them Lumia devices running Windows Phone. That's 27 percent down on the same period last year, when it sold 10.2 million smart devices: 4 million Lumias and 6.2 million older phones running the company's now-abandoned Symbian OS. Sales of smart devices dropped more slowly by value, down 24 percent to a!1.16 billion, buoyed by a 4 percent rise in average selling price.

Nokia sold about as many Lumia phones in the first half of 2013 as it did in the whole of 2012, CEO Stephen Elop said in a conference call to discuss the results.

The company shipped only a few tens of thousands of Symbian phones, down from half a million in the first quarter, said CFO Timo Ihamuotila. That's consistent with the company's previously announced plan to stop selling Symbian phones altogether this summer.

Sales of what Nokia calls mobile phones -- feature phones and more basic smartphones such as its Asha range -- fell 39 percent in value, to a!1.41 billion, hit by the same 27 percent fall in volume as smart devices but also a 16 percent drop in average selling price.

However, there were signs of a recovery in mobile phone sales in the latter part of the second quarter, Elop said, with sales boosted by the launch of the Asha 501, a low-end smartphone with a new touch interface. It's too early to tell how that will affect third-quarter sales, he said, as the phone is only just entering the channel in many markets.

Nokia's operating loss on devices and services has shrunk to a!33 million from a!473 million a year earlier. The company expects phone sales to pick up in the third quarter, but for operating profit to hover on the wrong side of break-even.

Microsoft remains a net contributor to Nokia's revenue as a result of the combined marketing-licensing agreement under which Nokia adopted Windows Phone, Ihamuotila said. "Overall, during the lifetime of the contract, we expect to be a net receiver, slightly, but at the beginning of the contract period we benefitted for the launch of the Lumia. This year we are still a slight receiver, a small amount at this point in time."

Gartner research director Roberta Cozza found Nokia's Lumia sales encouraging. "They are doing a good job in expanding the portfolio," she said, but "both Nokia and Microsoft need to create more consumer excitement around the Windows Phone brand."

That will involve recruiting more developers to create apps for Windows Phone, she said. Even though sales of Lumia phones have now overtaken those of BlackBerry devices, "The fight for third place is really open today," she said.

In the market for low-end smartphones, Nokia must quickly add more models alongside the Asha 501 if it doesn't want to lose out to white-box vendors in developing markets. "Competition is very tough at the low end," said Cozza.

Geoff Blaber, an analyst at CCS Insight, echoed the importance of adding more low-end smartphones to the range.

"Nokia is a case study for the pressures facing the broader handset manufacturing industry as it accelerates the transition to smartphones. The challenge for Nokia is that mobile phone volumes are eroding before it's fully completed its smartphone transition," Blaber said.

Sales at Nokia Siemens Networks, the network equipment company over which Nokia has now assumed full control, fell 17 percent year on year to a!2.78 billion, with the division moving to an operating profit of a!8 million from an operating loss of a!226 million a year earlier. In the third quarter, Nokia forecasts that the division's operating margin will rise to between 3 percent and 11 percent.

Those slim margins on networking equipment could be what keeps the company afloat in the short term, according to Blaber.

"Nokia is struggling to tread water. The networks business has replaced the mobile phones business as the lifeblood of the company whilst the latter continues to struggle in the face of an abundance of aggressively priced Android devices," he said.

Nokia's navigation and mapping division, Here, saw an 18 percent decline in sales, to a!233 million, with an operating loss of a!89 million, not quite as bad as the year-earlier operating loss of a!95 million. That, though, was sufficient to exceed Nokia's expectations, Elop said. Adoption is increasing in the automotive industry, while SAP and the U.S. highways administration have adopted the Here platform for location services, he said.

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