Does Nokia's Gloom Spell Doom?

After what may have been one of the Worst Weeks Ever for a mobile-phone manufacturer, Nokia (NYSE: NOK  ) has posted a loss for the first quarter of the year, the period in which the company hoped would be the beginning of its re-emergence as a handset super power.

Alas, Nokia's foreshadowing last week of the Finnish company's gloom-filled quarter turned out to be painted in more optimistic tones than the accounting realities posted today.

Last week's spin from the company's press release: "Nokia currently estimates that its non-IFRS [think of this as non-GAAP for international accounting] Devices & Services operating margin in the first quarter 2012 was approximately negative 3 percent."

This week's news from the company's earnings statement: Earnings tumbled by $1.2 billion on sales, compared with a profit of $452 million from the same quarter last year. This was on a 29% sales drop from Q1 2011.

Those disappointing sales figures came from the poorer-than-wished-for movement of Nokia's Lumia smartphones out of carriers' showrooms and into the hands of customers supposedly disappointed with their iPhones and Android phones. At least that's what Nokia's U.S. advertising campaign led one to believe with its aren't-you-tired-of-being-a-beta-tester message.

But the real-world experience turned out differently -- both in this country and in Europe. Here, Nokia's introduction of its LTE-capable flagship Lumia 900 smartphone through AT&T (NYSE: T  ) turned into a public-relations nightmare: A software problem made some of the phones unable to connect to the Internet. Also, launching a new product on Easter Sunday didn't help bring bodies into the stores.

Old World wireless carriers were also underwhelmed by the appeal of the Nokia Lumias, which run Microsoft's (Nasdaq: MSFT  ) Windows Phone mobile operating system. Reuters reported earlier this week that the four major European telecoms that have been selling the Lumias since last year said the phone just doesn't have what it takes to go up against either Apple's (Nasdaq: AAPL  ) iPhone, or Samsung's Galaxy, which runs Google's (Nasdaq: GOOG  ) Android OS.

"No one comes into the store and asks for a Windows phone," one executive even told Reuters.

Nokia's troubles were compounded by unexpected competition in the company's feature phone (AKA dumbphone) emerging-markets niche. Android-running smartphones from Asian manufacturers that have been heavily subsidized by Chinese telecoms have been drawing customers away from Nokia's once core mobile-phone business. Phone sales in China had fallen 70% in the quarter compared with the same period a year ago.

To try to counter that erosion, Nokia will soon be introducing its Lumia line -- which includes less expensive models than the 900 – into China, Singapore, Vietnam, Taiwan, Indonesia, and Malaysia.

And to treble Nokia's troubles, its 50-50 joint venture with Siemens, Nokia Siemens Networks, has been losing money and been hit with a $1 billion restructuring charge.

One would think that all of this, combined with Monday's credit downgrade from Moody's, would put Nokia CEO Stephen Elop on the ledge. But no funereal outlook from him.

"Clearly we are disappointed with our performance in the first quarter," he told The New York Times. "At the same time, the numbers mask the totality of what we have accomplished. Lumia is up and running in the U.S.A. We are clearly in the heart of the transition."

But that transition period shouldn't take too long, or analysts may not be so optimistic. Ben Wood of CCS Insight told Reuters, "There needs to be a meaningful turnaround in the second half of the year or serious questions will be asked about the future of Nokia and its management team."

One of the reasons Elop gave last year for Nokia's choosing Microsoft's Windows Phone to power its new smartphones was that he didn't want his company to just put out another commoditized handset undifferentiated from the multitudes of other Android phones. Investors -- myself included -- are hoping that the company has not differentiated itself into the waste bin.

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Fool contributor Dan Radovsky owns shares of Nokia and AT&T. The Motley Fool owns shares of Google, Intel, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Apple, Nokia, Intel, Moody's, Google, and Microsoft and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 19, 2012, at 8:55 PM, SUPERMANSTOCKS wrote:

    This may look bad for Nokia. But what it really is nothing than a buying opportunity for its shares. A company like Nokia will only rebound. Although it might take a moment, it will still rebound, or even be bought out

  • Report this Comment On April 19, 2012, at 10:18 PM, funspirit wrote:

    II am doing research on buying this stock. would Softy let it go out of business. Isn't it a little like the bank being backed by the Federal Reserve?

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