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Q109 Call: Nokia Services Revenues Linked To Handset Sales; XpressMusic Tops The Charts

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An interesting question – one that we’ve been curious about as well – was put to Nokia during their earnings conference call: do they look at their services as a driver of hardware sales, and less as a standalone driver of revenue? Nokia reported stagnant services revenues for the quarter, of EUR 150 million, and in the coming few months, will launch their Ovi store with the N97.

While not directly answering the question, the company representative said that the services revenues are significantly dependent on handset sales – that is how Nokia has linked its services; according to them, it can be seen as a competitive advantage as well. 

Nokia President & CEO Olli-Pekka Kallasvuo believes that the fact that they can add services on top of the device platform will give them opportunities in high-end and mid tier. At the same time, he said that “the services thinking needs to be applicable to low end as well, and we need to look at emerging market services to support us there.”  This also explains the rationale behind services like Nokia Life Tools

On the flip side, when the device sales are hit, as they have been in this quarter, the services revenues are going to be impacted too. Additionally, Nokia was impacted by the fact that the N Series devices didn’t ship in the numbers that they had hoped for.  At the same time, Kallasvuo said that the destocking of handsets by channel partners has bottomed out in most markets.

More on the N97, Music, Messaging and Pricing issues: 

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The N97 will begin shipping in June, and Nokia expects it to be a meaningful contribution to topline and bottomline in Q2; however, the company will begin shipping it in full volumes only by Q3. It could reach the 1 million a month mark, but that depends on the climate. Nokia is bullish on the phone, and says that it has received a wonderful reception from those who have tried it.

Music

Nokia had to increase its capacity for the 5800 XpressMusic: it is doing well in every country that it has been launched in, the company claims. They are currently shipping more than 1 million units per month. The handset was launched in singapore and Australia, and users have been downloading new, catalog and long-tail content. Millions of tracks have been downloaded – and around 20% over the air – which means that it contributed to operator revenues, through data usage. Nokia claims that it has added to the digital download market in Singapore by 30%. With the XpressMusic series, Nokia estimates that they captured around 20% of the touch screen handset volumes: that the handset is half the price of the iPhone was possible because of scale, supply chain and intellectual property portfolio. 

Messaging

Led by the Nokia E71. Shipped 3.3 million E-Series devices in Q1, around yoy growth of 85%. The Nokia messaging software is a “giant step forward”. “We have negotiated contracts with Yahoo Mail, Gmail, Windows Mail as well as thousands of ISPs. It can also integrate with the operators own email. They’re in discussions with many operators, and have launched with Orange, Singtel, Telefonica (Spain), and Vodafone.”

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Pricing Issues

We’ve written in the past about Nokia’s outlook on the handset pricing situation; they believe that some of the pricing moves from competitors have been supported by favorable currency fluctuations. Competitors are either making small profits, or generating significant losses. Nokia believes its scale and distribution will be key competitive advantages.

Q109 Details: Financials | Presentation | Release | Webcast

Related: Q109: Handset Shipments Decline 18% As Nokia Posts 26.7% Drop In Sales

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