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Nokia Q2-2012: Net Loss At EUR 826M; Overall Handset Sales Down 26% YoY

Nokia continues to report losses in quarter ended 30th June 2012. The company reported net sales of EUR 7.5 billion for the quarter, down 19% year-on-year and up 3% sequentially, and its operating losses were at EUR 826 million compared to operating losses of EUR 487 million, that it registered in Q1-2011.

Nokia CEO, Stephen Elop said that the company was taking action to manage through this transition period, and while Q2 was a difficult quarter, Nokia employees were demonstrating their determination to strengthen its competitiveness, improve its operating model and carefully manage financial resources. We are executing with urgency on our restructuring program. We are disposing of non-core assets like Vertu. ” We are taking the necessary steps to restructure the operations of the company, which included the announcement of a new program on June 14. Faster than anticipated, we have already negotiated the closure of the Ulm, Germany R&D site, and the negotiations about the planned closure of our factory in Salo, Finland are proceeding in a collaborative spirit,” he added.

He warned that Q3 will remain difficult, but said that it was a critical priority to return the company’s Devices & Services business to positive operating cash flow as quickly as possible.

Product Highlights:

– Nokia shipped 4 million Lumia phones in the quarter, and plans to provide updates to current Lumia products over time, well beyond the launch of Windows Phone 8. The Lumia portfolio is available in 50 markets, globally.

– In April, the Nokia Lumia 610, Nokia’s affordable Windows smartphone, went on sale, starting in Asia and expanding to other regions later in the quarter.

– In April, the Nokia Lumia 900 went on sale in the United States through AT&T. Lumia 900 sales exceeded  expectations from the start at AT&T and was consistently among the top selling smartphones on Amazon in the United States. Nokia also launched a non-LTE version of the Lumia 900 in other parts of the world during the second quarter

– In May, the Nokia 808 PureView, the first smartphone to feature Nokia PureView imaging technologies, went on sale. The device brings together high resolution sensors, exclusive Carl Zeiss optics and Nokia-developed algorithms, which will support new high-end imaging experiences for future Nokia products.

– In April, Nokia made available Nokia Browser 2.0, a major update for Nokia Series 40 devices. The new version claims to reduce data consumption by up to 85%.

– Nokia introduced the first full touch Asha devices – the Nokia Asha 305, Nokia Asha 306 and Nokia Asha 311

–  The company claims to have made good progress establishing its location-based platform with businesses like Yahoo!, Flickr, and Bing

– In April, Nokia started development of a new manufacturing facility in Vietnam to serve the feature phone market

– In June, Nokia announced acquisition of imaging specialists as well as all technologies and intellectual property from Scalado AB.

– In June, Nokia announced plans to divest Vertu, its luxury mobile phones business to EQT VI, a European private
equity firm.

The devices and services segment business of handset major Nokia contributed EUR 4.02 billion to net sales for the quarter ending June 30th 2012, down 26% year-on-year and 5% sequentially. The segment reported operating losses of EUR 474 million compared to operating losses of EUR 216 million that the company reported in the same quarter, last year.

Smartphone sales decreased by 34% Year on Year and 10% Quarter on quarter, while mobile phone sales (other than smart phones) witnessed a decline of 11% YoY and 1% QoQ. Gross margin(Non IFRS) for the devices and services segment declined to 18.1%, from 30.5% in Q2-2011.

Payment from Microsoft: Nokia received the  quarterly platform support payment of USD 250 million (EUR 196 million) from Microsoft. Interestingly this is the same amount that it received in earlier tranches. The company said that it has a competitive software royalty structure, which includes minimum software royalty commitments. Over the life of the agreement, both the platform support payments and the minimum software royalty commitments are expected to measure in the billions of US Dollars. Nokia has said that the total amount of the platform support payments is expected to slightly exceed the total amount of the minimum software royalty commitments.


Devices & Services

– Device Sales: Effective April 1,2011, Devices & Services business includes two new operating and reportable segments – Smart Devices, which focuses on smartphones, and Mobile Phones, which focuses on mass market mobile devices – as well as Devices & Services Other. Device sales for Nokia(in volume) were down 5% year-on-year and up 1% sequentially, at 83.7 million units.

In terms of volumes, Smart phone sales have declined 39% YoY and 14% QoQ to 10.2 million units, in the quarter. Mobile phones/feature phone sales have increased 2% YoY and 4% QoQ to 73.5 million units.

Nokia’s market share in the Smartphone market has declined significantly. It said that the year-on-year decline in Smart Devices net sales was primarily due to lower Symbian volumes, partially offset by sales of Nokia Lumia devices. In addition, Symbian ASPs(Average Selling Price) decreased on a year-on-year basis. On a sequential basis, the decline in its Smart Devices net sales in the second quarter 2012 was primarily due to lower Symbian volumes, partially offset by higher volumes of Nokia Lumia devices. Symbian ASPs increased and Lumia ASPs decreased on a sequential basis.

Feature phone sales also declined. According to Nokia, decline in feature phone sales both on a year-on-year and sequential basis, in the second quarter 2012 was due to the lower ASP.

However, in terms of volume, on a year-on-year basis, the increase in Nokia’s Mobile Phones volumes in the quarter was primarily due to the continued ramp up of its latest generation of feature phones, such as the Nokia 100 and 101, which are priced below EUR 50. However, volumes of its higher priced feature phone portfolio were adversely affected by competition from more affordable smartphones and from competitors with broader portfolios of feature phones with more smartphone-like experiences, such as full touch devices.

– Nokia’s overall Average Selling Price (including services revenue) decreased to EUR 48 from EUR 62 in Q2-2011 , however, the ASP was EUR 51 in the previous quarter. ASP for Smart phones was EUR 151 and for feature phones was EUR 31.

– As announced, Nokia started reporting the new Location & Commerce business which combines NAVTEQ and Nokia’s social location services operations from Devices & Services.  In addition to a portfolio of products and services for the ‘wider internet ecosystem’, the Location & Commerce business intends to create integrated social location offerings for Nokia smartphones, including Nokia products with Windows Phone. The segment reported net sales of EUR 283 million a 4% YoY increase and 2% sequential increase, primarily due to the higher recognition of deferred revenue related to sales of map platform licenses to Nokia’s Smart Devices business unit and higher sales of map content licenses to vehicle customers due to higher consumer uptake of vehicle navigation systems, and due to higher sales of map content licenses to vehicle customers due to higher vehicle sales as well as higher map update sales.

Future Outlook

Nokia expects its non-IFRS Devices & Services operating margin in the third quarter 2012 to be similar or below the second quarter 2012 level 0f -9%.

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