Is Growing Smartphone Market a Curse For Nokia Corporation (ADR)(NYSE:NOK)?
With the growing market for smartphone, Nokia Corporation (ADR)(NYSE:NOK) has been struggling to maintained its early market share as it has lost more than 11% to 29% last year from 40% in 2008.
But wait! There’s more… Market experts are expecting more losses in the coming quarters despite the company couldn’t make a good stand in the smartphone market after teaming up with Microsoft Corporation (NASDAQ:MSFT) last year as the company has been facing immense competition from Apple Inc.’s iPhone and cellphone makers using Google Inc.’s popular Android software — such as Samsung Electronics Inc. and HTC of Taiwan.
Shares of NOK have slumped to a 15-year low last week after reporting one of its worst quarterly results ever. The company posted net loss of a loss of $1.2 billion , reversing a year ago profit of $455 million a year earlier, while revenue slumped 30% to $9.8 billion from $13.7 billion in 2011. Net sales of devices slumped 40% to $5.6 billion, with smartphone sales dropping by over 50% to $2.2 billion. Sales of smartphones dropped to 12 million in the first quarter, from 24 million a year earlier, while volume sales of cellphones fell to 83 million from 108 million in 2011. The average selling price of Nokia devices also slid, to $67 from $86 a year earlier.
Moreover, the company issued bleak outlook for the second quarter, saying earnings would be “similar to, or below” those of the first quarter and that it will speed up its goal to cut costs by $1.3 billion by 2013. CEO Stephen Elop described the quarter as “disappointing,” conceding that Nokia had faced “greater than expected competitive challenges.”
If that wasn’t bad enough, last week, Moody’s Investors Service cut its rating on the company to the brink of junk territory, citing a severe decline in first-quarter mobile phone unit sales and market share gains by makers of very low-end phones. The ratings company downgraded its senior debt rating on Nokia a notch to Baa3 from Baa2, leaving it one step above junk level. The outlook is negative.
Shares of NOK closed lower by 3.14% to $3.70 on Friday after hitting a 15-year low of $3.69. For the week, the stock was about 8%. The stock has lost over 50% since Elop announced the deal with Microsoft.
Well, it would be interesting to see what Nokia Corporation is going to do going forward in order to recoup its lost glory.
What do you think?
I think they will change their goals, instead of aiming to maintain market share they will cut production significantly and concentrate on phones like the lumia 900 with the idea of producing a product people want instead of trying to mass sell phones no one wants anymore. The competition in the low end is too steep right now and no one is making money in that market. If they stay there they need a bare bones phone that can be produced for next to nothing and that the cell phone services companies will subsidize.
the lumia is achieving its goal of making inroads by being the cheapest high end smart phone. It has been compared favorably to the iphone even though it may not have the resolution other factors match up very well especially for the cost. (this phone is cheaper for the carriers to sell but right now with subsidies the price difference is somewhat hidden from public) I suspect we will see carriers finding ways to push customers into buying the lumia over the iphone since they make more profit on it. for example they could offer a 10 dollar a month lower subscription costs and still be way ahead of the 400 dollars they are giving customers on apple.
Nokia’s cash position will bear watching from here on out. They’re ok for now, but another couple of quarters like the last two will change that. The problem is that gross sales, ASP, and unit volumes are collapsing almost everywhere except for the WP/Lumia portion. Cost cutting is seriously lagging the decline in sales. It doesn’t seem likely that profits from the WP/Lumia lineup are going to get large enough quickly enough to offset all the other bad news.
They will fire the CEO and switch to Android (finally). Then hopefully those idiots will recover some of the shine they lost if they hadn’t hired that grave digger from Microsoft in the first place!..