Nokia sold 2M Lumia smartphones in Q1, but cuts outlook

Nokia (NYSE:NOK) lowered its first-quarter outlook for the performance of its devices business, and said it expected continued weakness in the second quarter. However, the firm noted it sold two million Lumia smartphones worldwide in the first quarter.

Nokia, which is banking on its Lumia line of devices running Microsoft's (NASDAQ:MSFT) Windows Phone platform to help turn around its smartphone unit, said it expects its non-IFRS Devices & Services operating margin to be around negative 3 percent in the first quarter, compared with the previously expected range of "around breakeven, ranging either above or below by approximately 2 percentage points." The company said it suffered from competitive industry dynamics, which negatively affected net sales in its handset and smartphone units, particularly in India, the Middle East and Africa and China, and that its gross margin declined, particularly in smartphones.

For the second quarter, Nokia said it expects its Devices & Services operating margin to be similar to or below the level of the first quarter. The company said the outlook reflects that its handset and smartphone units will continue to face tough competition, the timing, ramp-up and demand for new products and the macroeconomic environment.

Nokia currently estimates that Devices & Services net sales in the first quarter clocked in at $5.5 billion, made up of $3 billion in handset sales and $2.2 billion in smartphone sales. Nokia said it shipped a total of 83 million device units in the first quarter, including 12 million total smartphones.

One bright spot was that in the first quarter, Nokia sold more than two million Lumia devices at an average selling price of around $288. Nokia said it has seen sequential growth in Lumia device activations every month since starting sales of Lumia devices in November. In late January, Nokia CEO Stephen Elop said the company had shipped 1 million Lumia smartphones since they went on sale in November.

To improve its performance, Nokia said it will continue to increase its focus on accelerating Lumia sales, as well as on lowering the company's cost structure, improving cash flow and maintaining a strong financial position. Nokia said it is "taking tactical pricing actions" in the near term--i.e. cutting prices--and that it plans to bring new products to market in the second quarter of 2012. Nokia also said it will accelerate planned cost reductions and might look at "additional significant structural actions if and when necessary."

Meanwhile, Nokia acknowledged a software glitch in its flagship Lumia 900 smartphone, which AT&T Mobility (NYSE:T) began selling Sunday for $99.99 with a two-year contract. Some users had complained that they were unable to connect to any of AT&T's data networks. In a company blog post, Chris Weber, the head of Nokia Americas, and Jo Harlow, Nokia's smartphones chief, wrote that a memory management issue was discovered that could, in some cases, lead to loss of data connectivity.

"This issue is purely in the phone software, and is not related to either phone hardware or the network itself," they wrote. "As a proactive and prudent measure, we decided to take immediate action. We have identified the issue, and have developed a solution."

Nokia said if customers have purchased a Lumia 900 already they will be able to download a software patch to fix the issue on or around April 16, or they can swap their existing Lumia 900 for an updated one. Nokia also said every individual who has already purchased a Nokia Lumia 900--or who will purchase one between now and April 21--will receive a $100 credit to their AT&T bill from Nokia, essentially making the phone free. Nokia is already manufacturing devices with the new software and those are being shipped to AT&T stores. "The customer always comes first, and I think we're showing it here," Weber told AllThingsD.

Nokia and AT&T launched the device to few lines, since most stores were closed for Easter Sunday. However, the Lumia 900 has flown to the top of Amazon's best sellers list. The device is beating the likes of Motorola Mobility's (NYSE:MMI) Droid Razr Maxx and Samsung's Galaxy Nexus on the Amazon list.

Finally, according to IHS iSuppli as reported by AllThingsD, the Nokia Lumia 900 costs around $209 to build--a relatively inexpensive price for a smartphone.  

For more:
- see this release
- see this Nokia blog post
- see this AllThingsD article
- see this separate AllThingsD article
- see this Bloomberg article
- see this Engadget post

Related Articles:
Nokia, AT&T launch the Lumia 900 amid few lines, strong buzz
Sound Off: Will Nokia's Lumia 900 from AT&T be a hit?
AT&T, Nokia pushed Microsoft to add LTE to Windows Phone for Lumia 900
Nokia takes aim at iPhone with Lumia 900 viral ad campaign
AT&T to go all-out in Nokia Lumia 900 marketing blitz
AT&T to launch Nokia's Lumia 900 April 8 for $99

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