Nokia's Q4 profit drops 21%, company hints at smartphone OS changes

Nokia (NYSE:NOK) reported weak fourth-quarter earnings, and said it faces "significant challenges" ahead as it tries to navigate a changing mobile landscape. The net profit of the world's largest handset maker sunk 21 percent in the quarter, and its market share, especially in smartphones, dipped down yet again.

The results, while not unexpected, underline the challenges awaiting Nokia in 2011 as it seeks to compete against Apple (NASDAQ:AAPL), Research In Motion (NASDAQ:RIMM) and a variety of devices using Google's (NASDAQ:GOOG) Android platform powered by the likes of Samsung, HTC, LG and Motorola Mobility (NYSE:MMI).

Interestingly, Nokia indicated it might be willing to shake up its smartphone strategy by partnering with another company.

Nokia CEO Stephen Elop, on the job since September after coming over from Microsoft (NASDAQ:MSFT), said on the company's earnings conference call that although Nokia has some "gems" on which to build its strategy, it clearly must do more in smartphones.

"The game has changed from battle of devices to war of ecosystems," Elop said, according to AllThingsD: "Our industry has changed and we have to change faster."

Nokia has maintained that Symbian will be its mainstream platform of choice for most of its smartphones, and that it will this year introduce high-end devices running the MeeGo platform, which it developed with Intel. Elop stuck to the strategy of different platforms for the high end and low end of the market, and talked about the distinctions between each. He emphasized the importance of developers and services at the high end, and brand, scale, pricing and distribution at the low end. The company did not disclose any details about planned MeeGo products, but said it will unveil more details  about its mobile strategy at a company meeting Feb. 11.

Importantly, Elop talked about the need to "build, catalyze or join a competitive ecosystem," though he did not give any specifics or name any companies. He said Nokia could make an OS switch because of its brand and relationship with carriers. Analysts have mentioned both Android and Microsoft's Windows Phone 7 as potential Nokia partners. Elop said such a strategy must "re-open" doors in markets like the U.S. "Clearly there is a pattern of disappointments in the United States," Elop said.

Nokia reported a net profit of $1.02 billion, down from $1.29 billion in the year-ago period. Net sales clocked in at $17.33 billion, up from $16.42 billion in the year-ago period; however, taking into account currency fluctuations, sales were flat year-over-year.

In the quarter Nokia shipped a total of 123.7 million units, down 3 percent from the third quarter and 12 percent from the year-ago period. Nokia estimated that its overall global handset market share dropped to 31 percent, down from 35 percent in the year-ago quarter. Nokia had some bright spots to point to on smartphones, with smartphone shipments of 28.3 million units, up 36 percent year-over-year, indicating strong sales of devices like the N8 and C7 Symbian smartphones. However, Nokia's smartphone market share sunk to 31 percent, down from 40 percent in the fourth quarter of 2009. Nokia's average selling price was $94.54 in the quarter, up from $87.69 in the year-ago period and $89 in the third quarter of 2010.

As for Nokia Siemens Networks, Nokia's infrastructure joint venture with Germany's Siemens, the vendor reported an operating profit of $1.3 million in the quarter, compared with an operating profit of $23.2 million in the year-ago period, though up from an operating loss of $386 million in the third quarter of 2010. Sales were up 9 percent to $3.96 billion.

For more:
- see this release
- see this AllThingsD article
- see this Dow Jones Newswires article (sub. req.)
- see this Bloomberg article
- see this NYT article
- see this FierceWireless Q4 earnings page

Related Articles:
Report: Nokia scraps plans for X7 smartphone with AT&T
Nokia promises new smartphone UI paradigm with MeeGo
Nokia to take control of Symbian platform development
Nokia taps Qt as its sole app development framework
Nokia to slash 1,800 jobs after beating Q3 estimates

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