Nokia Reports Losses, CEO Elop Claims Reasons for Hope

Nokia CEO Stephen Elop tried sounding a note of cautious optimism even as his struggling company reported significant quarterly losses.

Nokia reported second-quarter profits that beat most analysts' expectations, but the Finnish phone-maker is still struggling to halt a precipitous market-share slide.

In all, Nokia reported a net sales decline of 7 percent and an operating profit decline of 41 percent (to $556 million) over the year-ago quarter. Despite that softness in sales and revenue, the company reported two bright spots: an agreement with Microsoft to port Windows Phone software onto Nokia smartphones, and Apple agreeing to pay undisclosed royalties as part of a patent-litigation settlement.

Despite those royalties and settlement, Apple has apparently overtaken Nokia to become the world's largest smartphone producer by volume. Low-cost Google Android devices represent another substantial concern, as does BlackBerry's continued entrenchment in the enterprise.

"The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011," Nokia CEO Stephen Elop wrote in a July 21 statement accompanying the results. "However, even within the quarter, I believe our actions to mitigate the impact of these challenges have started to have a positive impact on the underlying health of our business."

He claimed that a "more responsive approach to product pricing," along with a shift in sales focus and marketing resources, helped create what he termed "healthier sales channel dynamics." That being said, the company sees no relief from the competitive pressures squeezing its bottom line, at least in the near term.

"While our Q2 results were clearly disappointing, we are executing well on the initiatives that are most important to our longer-term competitiveness," Elop wrote. "We firmly believe that our deliberate and unwavering commitment to making the changes necessary at Nokia is the right way to deal with the disruptive forces in our industry and drive value creation for our shareholders."

In June, Elop offered an audience a glimpse of what looked like a Nokia N9 smartphone running Windows Phone. The N9, which currently runs a MeeGo operating system slated for mothballing by Nokia, married a curved 3.9-inch AMOLED (active-matrix organic LED) screen to a body engineered from a single piece of polycarbonate. The first Nokia devices running Windows Phone are slated to make their debut at the end of 2011.

News that Nokia will abandon its homegrown Symbian operating system, however, has led to a significant dip in Symbian handset sales, as customers flee the platform in favor of one that offers continuing support. That's led to analyst pessimism about Nokia's prospects over the next several quarters.

"While we maintain our belief the Nokia-Microsoft partnership is best positioned to potentially create a third viable smartphone ecosystem," Canaccord Genuity analyst Michael Walkley wrote in a June 1 research note, "we are increasingly concerned about sales for Nokia's Symbian devices during the transition period."

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