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Nokia is mid-slog through swampland, gritting its teeth as it trudges toward what it swears is higher ground ahead.
On July 19 the phone maker delivered a second-quarter earnings report nearly as cringe-worthy as expected. While it posted a net loss of approximately $1.88 billion, it also managed to double the number of Lumia smartphones it sold during the quarter, from 2 million in Q1 to 4 million units in Q2.
The other bit of good news: Its cash reserves were better than analysts expected$5.15 billion instead of $4.54 billiongiving it a bit more leeway on its slog.
Naturally, the message from CEO Stephen Elop was: onward and upward.
While Q2 was a difficult quarter, we are demonstrating our determination to carefully manage our financial resources, improve our operating model and improve our competiveness, Elop told analysts on the call, before launching into explanations of each area.
Regarding the phone maker’s ability to compete, Elop touched first on the feature phone market, saying that Nokia sold 73 million phones during the second quarter, representing a quarter-to-quarter increase, and that it has introduced new features for these devices aimed at an attractive market.
Moving on to smart devices, he noted that the Lumia phones were well-received, pointing to a recent Neilsen rating in which 95 percent of Lumia 900 owners said they’d recommend the phone to others.
In February 2011 Elop announced a new allegiance to Microsoft, as part of a last-ditch move to save Nokia. Despite the doubled sales of the Lumia phones, which run Windows Phone 7.5 and are the first result of the partnership, they’ve been overwhelmed by the success of Samsung’s Galaxy smartphone lineup and Apple’s ongoing success with the iPhone.
The Lumia phones were also set up for a hit when Microsoft announced in June that the phones won’t be able to receive the Windows Phone 8 upgrade it has been working on.
Still, Elop, again looking forward, remarked:
“We expect the launch of Windows 8 for PCs and tablets, plus the launch of Windows Phone 8, to be a catalyst for Lumia. Windows Phone 8 will share the same Metro user experience and the core operating system technologies as Windows 8, providing a similar platform for developer applications across devices. As Microsoft shared, the look and feel of the Lumia interface is to become familiar to millions of people through PCs, tablets and Xbox consoles.Plus, we anticipate that Microsoft will launch a bold and aggressive marketing campaign for Windows 8, which we believe will have a halo effect for Lumia. And as the lead mobile partner for Microsoft, we plan to deliver competitive smartphones with Windows Phone. We intend to broaden the price point range of Lumia devices to price points both higher for better gross margins and lower for volume. Additionally, we are investing in the materials, new technologies and location-based services for a great consumer experience.“
For the Lumia devices that won’t receive the WP 8 upgrade, Elop said there will be ongoing updates, including WiFi tethering, flip to silence, media content streaming and exclusive applications like some from Zynga. They’ll also receive an update with the WP 8 start screen, camera updates and updates to Nokia Drive, Nokia Transport and Nokia Music.
Julia Jest, a research analyst with Informa Telecoms & Media, believes Nokia is right to persevere with Windows Phone, despite criticisms that it may have turned instead to Google’s Android OS.
As a stand-alone OS, Windows Phone will not succeed and will remain a niche product, Jest said in a July 19 research note. However, Microsoft has a huge market share in terms of desktop computers, laptops and Ultrabooks. The release of Windows 8 across multiple platforms, including the new Surface tablet, will provide the consumer with more exposure to the OS’s unique features and benefits, and will give the boost in sales that Nokia needs.
Despite Nokia’s ongoing struggles to attract U.S. consumers, Jest says the bigger challenge for Nokia will be maintaining its market share in Chinanow the world’s largest phone marketwhere local brands are making inroads.
While Nokia is running out of time, says Jest, it still has sufficient cash to make it through subsequent quarters, and is willing to do whatever it takes¦
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