Sales of Nokia’s (NYSE:NOK) flagship smartphone — the Lumia, powered by Microsoft’s (NASDAQ:MSFT) Windows Phone — took on a dual role in the struggling company’s second-quarter earnings report. The phones were both the one encouraging number in the release and a sign that the company’s rivalry with smartphone market leaders Apple (NASDAQ:AAPL) and Samsung (SSNLF.PK) has kept any turnaround in the company’s financial fortunes from beginning. In other words, sales were good, but not good enough.
The mobile revolution has forged winners like Apple and forced other market players to play catch-up after failing to adapt quickly enough to the changes. Those companies in the latter category include PC-software pioneer Microsoft and Nokia, which was a leader in early cellphone design. Apple’s introduction of the iPhone in 2007 and the iPad in 2010 shook the technology world.
Even though the Lumia has gained a small measure of traction — Nokia shipped 32 percent more Lumias in the latest quarter than in the first three months of the year — the Espoo, Finland-based company lost business in all of its major units in the second quarter.
Revenue fell 24 percent from the year-ago quarter to 5.7 billion euros, or $7.47 billion, while sales dropped 3 percent from the first quarter. Overall, the increase in Lumia shipments did not help much. The company’s sales of smartphones and feature phones are still decreasing, and in only the first three months of the year, Nokia lost nearly 5 percentage points of global market share, according to the research firm Gartner.
Nokia also reported an operating loss of 115 million euros, or $150.65 million for the three-month period, while the company’s handset business lost 33 million euros, $43.23 million, on revenue of 2.72 billion euros, a decrease of 32 percent from the year-ago quarter and 6 percent sequentially.
Nokia’s problems were most accurately summarized two years ago by Stephen Elop, a former senior Microsoft executive who became Nokia’s CEO. In an internal memo, he likened the company to a man working on a burning oil platform in the middle of the North Sea, whose situation presented a Catch-22: He could either risk death on the burning platform or take a risky plunge into the freezing water, which could save him.
Elop chose to swim, forming a partnership with Microsoft, which was looking for an ally for its new smartphone software. Nokia picked Microsoft’s Phone mobile operating software over Google’s (NASDAQ:GOOG) Android and Apple’s iOS, a deal that made both companies deeply dependent on each other for their mobile future.
In 2006, Nokia held about half of the smartphone market, but that changed when Apple launched the iPhone. At the time, Nokia’s shares sold for about $40, but before earnings were released, they traded at just over $4. Investors met the company’s latest earnings report by bidding shares down as much as 4.21 percent, to $3.87, in pre-market trading.
“We are very proud of the recent creations by our Lumia team, from the Lumia 520 — our most affordable Windows Phone 8 product which has enjoyed a strong start in markets like China, France, India, Thailand, the UK, the US and Vietnam — to the Lumia 1020, our star imaging product which we unveiled to the world last week,” Elop said in the earnings press release. “Overall, Lumia volumes grew to 7.4 million in the second quarter, the highest for any quarter so far and showing increasing momentum for the ecosystem.”
In the third quarter, Nokia expects new Lumia products to “drive a significant part of our Smart Devices revenue.”
Follow Meghan on Twitter @MFoley_WSCS
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