Technically speaking, Nokia (NOK +0.00%) just put up better-than-expected results for its third-quarter earnings. Expectations were rather low going into the report, and estimates aside, the figures were rather grim. Let's dig in.
Figures first
Total sales fell 19% to $9.9 billion, topping the analyst consensus of $8.9 billion by a healthy margin. The Finnish smartphone giant posted adjusted earnings per share of about $0.09, again better than the $0.14 per share loss the market thought was coming.
Breaking down the top line, the core devices and services business saw revenue drop 34%, mostly driven by weakness in smartphone sales as the company continues its transition to Microsoft (MSFT +2.28%) Windows Phone as its primary operating system platform.
|
Device |
Units Shipped Q3 2012 |
Units Shipped Q3 2011 |
Change (YOY) |
|---|---|---|---|
|
Smart devices |
6.3 million |
16.8 million |
(63%) |
|
Mobile phones |
76.6 million |
89.8 million |
(15%) |
Source: Nokia.
That's a large drop-off in smartphone units, but not entirely unsurprising since we're talking about the quarter immediately preceding the launch of Windows Phone 8, and some delayed purchases can be expected in such a transitional quarter. Just last month, Nokia unveiled its new flagship WP8 device, the Lumia 920.
Lumia and me
The Lumia product family that runs Windows Phone saw 2.9 million units shipped. That's down sequentially from the 4 million that shipped in the second quarter. There's really no way around it: Smartphone sales were incredibly weak.
For some additional context, I track Nokia's smartphone shipments going as far back as the second quarter of 2005 when the company first began disclosing smartphone units separately, and this quarter's unit shipments are lower than any point in the past seven years, at least. The Lumia lineup was launched a year ago, and the future of Nokia's device business rests squarely on its shoulders.
Source: Nokia.
When the Lumia product family launched last November, it sold about 1 million units -- 5.1% of total smartphone units. As Nokia focuses its firepower on Windows Phone and shifts away from its other smartphone platforms, total units have fallen precipitously as Lumia's percentage of smartphones shipped has soared to 46% of units last quarter.
This is probably the best visualization of Nokia's transition for investors -- and how important Lumia is.
Choice words
Nokia's total operating loss came out to $755 million, largely due to the weak device business. The networking segment generated the most operating black ink, while the small mapping business lost a little bit. On an adjusted basis, Nokia squeezed out a small operating profit of just over $100 million.
The weakness in the device business was entirely expected, CEO Stephen Elop conceded. He said that Nokia's new Asha lineup (that doesn't run Windows Phone) is seeing "positive consumer response." The mapping business is growing and Elop confirmed that Nokia has scored Amazon.com (AMZN +3.83%) as a mapping customer.
Nokia even took the opportunity to take a jab at Apple's (AAPL 0.17%) Maps debacle on the conference call: "As witnessed by the consumer response to our competitor's maps, people do want to ensure their smartphone delivers accurate mapping information, so they can reliably navigate their lives." Still, at 3.6% of the quarter's revenue, the mapping business is hardly a show stealer.
Tick, tock.
The company expects challenges to continue through the fourth quarter, with operating margin guided to the range of negative 6%, plus or minus 4%. While the important holiday quarter is typically strong seasonally, Nokia thinks this year any seasonal upside will be "lower-than-normal" as it continues to transition to Lumia sales.
Competition for holiday smartphone shoppers will be intense. Apple just launched its iPhone 5, the Android army is preparing for battle, and HTC has also launched a Windows Phone flagship that even resembles the Lumia 920.
Investors and analysts alike are losing patience with Elop's turnaround plan, as he's now been at the helm for two years. The clock is ticking down to prove he can pull it off, and some think Elop only has until early next year. With the fourth quarter expected to be weak, Elop might need more time if investors will give it to him.
