Nokia (NYSE:NOK), struggling to gain traction in its planned smartphone turnaround using Microsoft's (NASDAQ:MSFT) Windows Phone platform, reported a wider than expected $1.75 billion operating loss for the first quarter.
Although analysts had been expecting a weak quarter from Nokia, and the company had indicated its key Devices & Services business would post an operating loss, the company's overall operating loss was larger than the $955 million operating loss analysts were expecting, according to the Wall Street Journal. Nokia posted an operating profit of $574 million in the year-ago period. Nokia's net loss was $1.2 billion, down from a $450 million net profit in the first quarter of 2011.
The company's fortunes have been declining due to slowing sales of its feature phones and Symbian smartphones. Sales of Nokia's Lumia Windows Phone smartphones, which Nokia began selling in November, haven't compensated. However, Nokia's results were burdened by $1.4 billion in charges, including a $1 billion restructuring charge for Nokia Siemens Networks. (Click here for NSN's earnings.)
Overall, Nokia's sales fell 29 percent to $9.6 billion in the quarter. Sales in Nokia's key devices and services businesses dropped 40 percent to $5.55 billion, and its smartphone sales plunged 52 percent to $2.22 billion. Nokia sold 82.7 million total mobile phones, including smartphones and feature phones, down 24 percent from 108.5 million in the year-ago period. Nokia sold 11.9 million smartphones in the period, down 51 percent from the 24.2 million smartphone units it posted in the first quarter of 2011. Nokia sold two million Lumia smartphones in the first quarter. Meanwhile, feature phone shipments dropped to 70.8 million units, down 16 percent from 84.3 million units in the first quarter of last year.
On the company's earnings conference call, Nokia CEO Stephen Elop said that the company is "disappointed" with its results, but that it is taking steps to change its trajectory. He said the company's results "reflect both the transition Nokia is currently undergoing as well as the increasing competitive pressure in our industry."
Elop said Microsoft is contributing research and development, marketing and platform support payments to Nokia that will total more than $1 billion in 2012. In the first quarter, Microsoft paid Nokia a $250 million "platform support payment," the same it received in the fourth quarter. Elop said Nokia is working with Microsoft every day on future product plans and that the two companies' interests are closely aligned.
To accelerate its smartphone sales, Elop said Nokia will expand the availability of the Lumia 900 and Lumia 610 models in markets around the world. Elop also said Nokia would unleash a second wave of Lumia advertising. Without providing specific sales figures, Elop said that sales of the Lumia 710 at T-Mobile USA and Lumia 900 at AT&T Mobility had exceeded expectations. Elop also said that while Lumia sales in markets like the U.K. have not been as high as Nokia would like, Elop said the company is learning valuable lessons about what retail strategies are working.
Nokia cut 14,000 jobs last year as part of a plan to cut $1.3 billion from its operating costs by 2013. Nokia said it plans to accelerate and substantially deepen cost savings for its Devices & Services unit, but did not provide specifics. Nokia said that Colin Giles, its executive vice president of sale, will step down for personal reasons on June 30 after 20 years with the company.
Analysts said they thought pressure on Nokia would increase throughout the year to turn its business around. "There needs to be a meaningful turnaround in the second half of the year or serious questions will be asked about Nokia's future," CCS Insight analyst Ben Wood told Reuters.
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