Nokia needs more to stay profitable

Nokia overcame all odds to record an operating profit in the final quarter of 2012, however the result was marred by its full year figures, which show its operating loss more than doubled year on year.
 
The vendor overturned a €954 million ($1.27 billion) operating loss in 4Q11 with a profit of €439 million in the recent quarter, despite sales dropping 20% year on year. The 4Q12 profit was also a significant improvement on Nokia’s third quarter, when it generated an operating loss of €576 million.
 
However, the bounce back in 4Q12 failed to stem the firm’s annual losses, which increased from €1.07 billion in 2011 to €2.3 billion in 2012. Sales fell 22% to €30.1 billion, and the firm’s management has proposed not paying a dividend for the year.
 
Chief executive, Stephen Elop, says the fourth quarter figures show the firm’s business strategy “has started to translate into financial results.” He states the firm’s full year results were hit by a tough 1H12, and pledged to continue transitioning the firm by improving its “product competitiveness,” and speeding up the way it operates and manages costs. “All of these efforts are aimed at improving our financial performance and delivering more value to our shareholders.”
 
Operating profit at Nokia’s devices and services division grew 36% year on year in 4Q12, despite an overall fall in device shipments from 113.5 million in 4Q11 to 86.3 million in 4Q12. Smart device shipments fell 66% to 6.6 million units, despite the launch of the firm’s Lumia 920 during the quarter.
 
The firm’s other business units fared better. The location and commerce unit slashed its operating loss from €1.2 billion in 4Q11 to €56 million in 4Q12, and Nokia Siemens Networks increased its operating profit from €67 million to €251 million year on year.
 
David McQueen, principal analyst at Informa Telecoms & Media, says the results show the firm’s cost cutting strategy is beginning to bear fruit, but cautions that Nokia “needs much more to stay competitive.”
 
The ‘more’ Nokia needs includes improvements to the Windows Phone platform, McQueen states. “Nokia’s smartphone volumes in 2013 are clearly reliant on Lumia plugging the gap left by the rapidly-decreasing Symbian sales, but the issue is whether Windows Phone 8 (and the wider Windows 8) platform can prove to consumers quickly enough that it is a viable alternative to iOS and Android.”

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