Nokia Posts Small Quarterly Gain, Solidifies Microsoft Deal

Nokia surprised Wall Street by announcing a first-quarter financial gain but warned of a tough second quarter. Nokia also solidified its deal with Microsoft.

Nokia posted fiscal 2011 first quarter results April 21 that were surprisingly positive in some respects, beating Wall Street estimates, while still pointing to a rocky road ahead. The smartphone maker also formalized its deal with Microsoft, which will bring Windows Phone 7 to its phones.

Nokia's total mobile device volumes were up 1 percent year-over-year, for a total of 108.5 million units, and its converged mobile device volumes rose to 24.2 million units during the quarter, up 13 percent year over year. Mobile phone units alone, however, dipped by 2 percent, to 84.3 million units.

"In the first quarter, we shifted from defining our strategy to executing our strategy," Nokia CEO Stephen Elop said in a statement. In recent quarters Nokia has been losing market share to Android-running smartphones and the Apple iPhone. In February, after warning Nokia staff in a memo that saving the company would require some "radical" changes and previously unthinkable behavior, Elop announced that Nokia was shifting its primary focus from the Symbian operating system to Microsoft's Windows Phone 7.

Reaching a definitive agreement with Microsoft sooner than expected, on April 21 Nokia was also able to pair its earnings announcement with news that it is making "significant progress" in developing Nokia smartphones running Microsoft's Windows Phone. The pair are planning to ship the devices in 2012.

"At the highest level, we have entered into a win-win partnership," Elop, a former Microsoft executive, said in a statement. "It is the complementary nature of our assets, and the overall competitiveness of that combined offering, that is the foundation of our relationship."

That positivity will be necessary to get it through the next quarter. While during the first quarter Nokia posted devices and services net sales of 7.1 billion euro, or approximately $10.4 billion U.S. (which was up 6 percent from a year earlier, but down 17 percent from the quarter before), it expects second-quarter net sales to be between 6.1 billion and 6.6 billion euro.

Nokia is also anticipating greater impact, it said, "from the tragic events in Japan than we experienced in the first quarter of 2011, particularly relating to component supply visibility for certain devices and other logistics disruptions related to suppliers located in Japan." The negative effects of these factors will be felt not only during the second quarter, it added, "but also through the third quarter of 2011, at least."

Finally, it also cautioned that in Q2 it expects a greater impact from its "lack of dual-SIM devices," and a "lower contribution from new products," as it plans to begin shipping the majority of its new products in the second half of the year.

Earlier this month, following long delays, Nokia introduced two new smartphones, the E6 and X7, running an updated version of Symbian, nicknamed "Anna." Thin and slick and constructed of glass and stainless steel, the phones made good on Nokia's promise to continue supporting Symbian, despite its pledge to Microsoft. The candybar-style E6, intended for enterprise users, pairs a 2.46-inch touch screen with a QWERTY keypad, while the entertainment-inclined X7 is Nokia's first with a 4-inch AMOLED touch screen.

Nokia plans to release additional Symbian smartphones in 2012, and according to an Australia-based executive, is obligated to support its devices for two years, meaning Nokia's Symbian support will continue at least through 2014.   

"We are encouraged by our roadmap of mobile phones and Symbian smartphones, which we will ship through the balance of the year," Elop added. "We are fully focused on delivering the needed accountability, speed and results to positively drive our future financial performance."