Nokia's Windows Phone Sales Top 1 Million Units, but Profits Tumble

Nokia's Windows Phone line sold 1 million units in the fourth quarter of 2011, but the company's financials declined as it continues to navigate a transition period.

Nokia sold more than 1 million Windows Phone units in the fourth quarter of 2011, surpassing some analyst expectations. That being said, the company's quarterly results suggest it has a lot of ground to recover if it ultimately wants to challenge Google Android and Apple.

Nokia's net sales declined 21 percent from the year-ago quarter. Operating profit, device volume, and net cash also tumbled. Overall, the Finnish phone maker managed to sell some 113.5 million mobile devices, including 19.6 million smartphones.

Early in 2011, Nokia abandoned its homegrown operating systems-including Symbian-and bet everything on Microsoft's Windows Phone platform. According to a Jan. 26 earnings statement, Microsoft paid Nokia a $250 million "quarterly platform support payment," as part of the two companies' broader strategic agreement. "Over the life of the agreement, both the platform support payments and the minimum software royalty commitments [which Nokia will pay to Microsoft] are expected to measure in the billions of dollars," that statement added.

The falloff in Nokia's year-over-year financials wasn't unexpected by analysts, who seemed to uniformly realize that the company's decision to kill of Symbian would translate into a decline in sales and market share. That being said, research notes produced in the wake of Nokia's earnings announcement seemed duty-bound to highlight the company's current rough period-as well as the dangers that possibly await in 2012.

"Given a measured WP7 rollout and subsistence on an end-of-life Symbian portfolio, we see scope for m/share disappointment again in [the first half of 2012]," Lee Simpson, an analyst with Jefferies & Co., wrote in a co-authored Jan. 26 research note. "With the ecosystem ceded to Microsoft, Nokia resembles a low-margin box maker rather than a firm returning to its strident past."

Those sales headwinds, the note continued, are balanced out somewhat by Nokia's improved market execution and cost cutting, along with its strong wireless patent portfolio-all positive factors that could help make Nokia's fiscal 2012 "a transition year."

For Nokia, navigating that transition is fully dependent on handling the various facets of its Windows Phone deployment. "The key to success in many markets will rest on how much Nokia invests in promoting its Windows Phone devices," Ken Hyers, a senior analyst with Technology Business Research, wrote in a Jan. 26 note, "including promotions, subsidies, and training of phone sales staff in carrier stores and retail sales outlets."

What might ultimately help Nokia and Microsoft carve off more market share from their competitors, he added, is keeping smartphone price-tags noticeably low. The midmarket Lumia 710 currently retails for $49 with a two-year contract, and the higher-end Lumia 900 will reportedly hit the market at a $99 price point. "At these prices, Nokia can expect to be viewed as a strong alternative to competing platforms, particularly for the more than one-half of the U.S. population that does not yet have an Android or Apple smartphone."

In remarks accompanying Nokia's earnings report, CEO Stephen Elop acknowledged his strategy for the company, centered on Windows Phone, was still very much a work in progress: "We still have a tremendous amount to accomplish in 2012, and thus, it is my assessment that we are in the heart of our transition."

Follow Nicholas Kolakowski on Twitter