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Nokia's Q2 fails to assuage concerns, but NSN is a bright spot

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Signs of a turnaround at Nokia remain elusive after it reported a further sharp fall in revenue in the second quarter, deepening concerns that the company's bet on the Windows Phone operating system is not going to pay off and putting further pressure on CEO Stephen Elop.

Elop

Group net sales were down 24 per cent year-on-year at €5.69 billion, while revenue for the first half of the year dropped 22 per cent to €11.54 billion. Operating profits were down by as much as 150 per cent to €115 million, and net cash was also slightly down 3 per cent at €4.06 billion.

The second-quarter net loss narrowed to €227 million from €1.4 billion a year earlier. Analysts projected a loss of €258.8 million, Bloomberg reported.

Nevertheless, the Finnish mobile phone maker said its underlying profitability improved for the fourth consecutive quarter, with a non-IFRS operating margin of 5.3 per cent. Nokia attributed this to the strong performance of Nokia Siemens Networks. Nokia has said it will buy Siemens' 50 per stake in the venture for €1.7 billion, and expects that deal to close in the third quarter

"We're pleased to report an underlying operating profit for the fourth consecutive quarter on a group level," Elop said in a statement. "We benefited from another strong performance at Nokia Siemens Networks, which continued to deliver well against its focused strategy."

Elop further highlighted the increase in sales of Lumia Windows Phone smartphones to an all-time high of 7.4 million, although Reuters noted that this was fewer than the 8.1 million units forecast in a Reuters poll of analysts. There are also concerns that the market for high-end smartphones is reaching saturation point following weak results from BlackBerry and HTC and a profit warning from Samsung.

"The concern is that the high-end smartphone market looks weak across the board, whether it be weak numbers from HTC or BlackBerry, or Samsung coming in lower than expected. That's going to make it tough for Nokia and Lumia volumes," Canaccord Genuity analyst Michael Walkley told Reuters.

Demand for low-end Nokia devices fell by 27 per cent to 53.7 million units.

Nokia continues to pin its hopes on new Lumia models, such as the 1020 with a 41-megapixel camera that was launched last week. However, it remains uncertain that the company has the marketing clout to push the device out to consumers, while there are still questions whether the camera will encourage consumers to choose the new Lumia device over an Apple iPhone or Samsung smartphone, for example.

For more:
- see this Nokia release
- see this Reuters article
- see this Bloomberg article
- see this WSJ article (sub. req.)

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