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Nokia gave investors a warning April 11, announcing in advance of its fiscal 2012 first quarter that its performance wasnt quite what it hoped it would be.
During the quarter, Nokia sold more than 2 million Lumia smartphones, at an average price of 200 euros, or about $260 U.S. dollars, and saw sequential growth in Lumia device activations every month since starting sales of Lumia devices in November 2011, the company reported from Finland.
However, competitive industry dynamics, particularly in India, the Middle East and Africa, as well as gross-margin declines in its Smart Devices business unit, negatively affected Nokias bottom line to a greater extent than previously expected.
While Nokia anticipated Device & Services operating margins to break even, or be above or below 2 percentage points, the company finished the quarter at approximately negative 3 percent.
Such disappointing results, Nokia CEO Stephen Elop said in a statement, illustrates that our Devices & Services business continues to be in the mist of transition. Elop added that Nokia has established early momentum with Lumia, and is increasing its investments in Lumia to achieve market success.
In January, Nokia went after first-time smartphone buyers in the United States with the launch of the Lumia 700, the first Nokia Windows Phone to reach U.S. shores, on the T-Mobile network.
Any real fanfare for the Nokia and Microsoft match-up didnt arrive until April, however, with the arrival of the high-end, Long-Term Evolution- (LTE-) equipped $100 Lumia 900 on the AT&T networktoo late to help Nokias first-quarter results.
Nokia continues to be a roller-coaster ride for investor sentiment as product cycles bedazzle but ultimately disappoint, analysts with investment firm Jefferies wrote in an April 11 research note. For some hard-heads, the long-term trend to brand irrelevance is embarrassingly plain in some countries. Whatever structural reforms lie in wait ¦ the conundrum remains: Just what is Nokia if not an ailing low-margin box maker?
Ouch.
Forrester analyst Thomas Husson, in an April 11 blog post, was slightly hopeful for a near-field communication- (NFC-) enabled version of the Nokia Lumia 610, which Nokia announced the same day will debut on the Orange network. While the Lumia 610 is certified for contactless payment via MasterCard PayPass technology and Visas mobile app for payments, Husson believes consumers will more likely take up NFC for uses such as device pairing and data sharing.
Its good to see Nokia adding NFC to Lumia devices before the launch of Windows 8. Its likely that Nokia and Microsoft will try to position themselves as the leading handset platform for contactless services and secure financial transactions, Husson wrote.
He added, however, that Nokia still has to execute perfectly in order to get back in the game and emerge as the third platforma role RIM would very much like for its upcoming BlackBerry 10and that Nokia has already admitted the Lumia 900 has a software bug. It has already, too, announced that a fix will be available around April 16, and all AT&T customers who bought a Lumia 900, or will have done so by April 21, will receive a $100 credit.
Nokia, in its statement, said it will increase its focus on Lumia sales, work on lowering the companys cost structure, improving cash flow and maintaining a strong financial position, and bring new products to market during the second quarter.
Our best hope was that [fiscal year 2012], although heavy on structural issues, could form a transition year for Nokia, wrote the Jefferies analysts. It will be interesting to see if at the more qualitative end of the story [long-term margin targets, ecosystem engagement, improving portfolio and increasing range of WP suitability], management has enough ammo to coax investors back on the roller coaster in [the second half of 2012].