Nokia Posts Quarterly Loss, Bets on Lumia Smartphones, Patent Portfolio

Nokia had a tough first quarter, but the Finnish phone maker has a five-part plan for the road ahead and a rich patent portfolio it can better leverage.

The dominance of the Apple iPhone and smartphones running Google€™s Android OS was made increasingly clear as Nokia outlined, during an April 19 earnings call, its struggles and tactics in establishing itself as the mobile industry€™s No. 3 player.

Despite major overhauls, new-product pushes and an expansion into 31 countries, Nokia saw net sales in its 2012 fiscal first quarter drop 29 percent year-over-year and 26 percent from last quarter. It posted a net loss of approximately $2 billion U.S. dollars. On April 11, announcing that it had sold 2 million Lumia smartphones during the quarter, Nokia warned investors that the quarter had fallen below expectations.

€œOver the last year, we have made progress against our new strategy, but we face challenges as we move forward,€ Nokia CEO Stephen Elop said during a call with media and analysts, according to a transcript from Seeking Alpha. €œWe recognize what these challenges are, and we are intensely focused on responding urgently, so we can accelerate our success and create value for our shareholders.€

Nokia€™s big bet, if not for a comeback then a turnaround, centers around its new relationship with Microsoft, since the company€™s Windows Phone operating system runs on Nokia€™s new Lumia smartphone line; a lower-end 710 model is available from T-Mobile, and weeks later AT&T began selling the high-end 900.

Launching four Lumia devices ahead of schedule and doubling quarter-on-quarter sales was part of Nokia's plan, said Elop, explaining the first component of a five-part strategy. €œWe are pleased with the rate at which we have turned the Microsoft partnership from strategy to implementation,€ said Elop.

A second aspect is going after the next billion people who will connect to the Internet€”users whom BlackBerry maker Research In Motion, which would also like the No. 3 ecosystem spot, is also ramping up efforts to court.

The third aspect, which Elop called €œfuture disruptions,€ identifies and works to overcome shortcomings in users€™ current mobile experiences. €œWe are doing €¦ work in areas like materials, user experiences, power management and even the very nature of what will, in the future, constitute an ecosystem,€ said Elop.

Fourth is a focus on differentiation, which Nokia is pursuing not only through its partnership with Microsoft€”that it would turn to Android was a frequent speculation, pre-Microsoft€”but in its designs and capabilities like focusing on the cameras and optics in its phone.

Finally, fifth is to pick up the pace.

€œWe are establishing a clear sense of urgency and increase in the clock speed of our company. Last week's news highlights that there is still a lot of improvement ahead so that we can lead and not react to the competitive dynamics in the market,€ said Elop. €œIn totality, the intent of the strategy is to reaffirm Nokia's position of strength in the mobile industry €¦ €

Nokia CFO Timo Ihamuotila added that Nokia could also make a few dollars by better leveraging its patent portfolio, which is currently on track to earn it 500 million euros annually. As part of its Windows deal, Microsoft now pays Nokia royalties, as does Apple, following a June 2011 agreement.

€œWe can look at €¦ certain patent family combinations where we can take some patents that are valuable but that could be more valuable outside Nokia than inside the company, but still keeping our strength,€ said Ihamuotila, adding that it€™s €œunrealistic€ with Nokia€™s current business model that it could somehow sell off its whole intellectual property rights (IPR) portfolio.

Analysts with investment bank Jefferies, in an April 19 note to investors, wrote they were concerned that smartphones updated to Windows Phone 8 will €œstill be inferior to Android and Apple iOS rollouts later this year.€

They added that elsewhere in Nokia€™s smart device efforts, they €œremain skeptical€ of Nokia€™s ability to compete aggressively enough in the mass market smartphone space in China.

Speaking to Reuters, IDC analyst Francisco Jeronimo was more optimistic, pointing to the 2 million Lumia phones Nokia sold during the quarter. While Apple is expected to announce calendar Q1 shipments of more than 30 million iPhones, Jeronimo pointed out, €œit took five quarters for Android to reach the 2 million" shipments a quarter mark.