Are things starting to look up for Nokia?

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Manufacturer makes first quarterly profit for 18 months as Windows Phone market share trebles in the UK year on year

Nokia has seen the first signs of recovery two years after partnering with Microsoft – posting its first quarterly profits in six consecutive quarters.

The one-time Finnish giant has endured a torrid 2012, shedding more than 10,000 jobs worldwide, recording large financial losses and relinquishing its place as the world’s biggest manufacturer after 14 years to South Korean rival Samsung.

But in Q4, its fortunes took a dramatic turn: it posted profits of £369.9 million, compared to losses of £485.3 million in the previous quarter and £803.7 million year on year.

Sales of Nokia smartphones also increased by five per cent year on year to 6.6 million. This figure includes 4.4 million Lumias sold – up from
2.9 million in the previous quarter.

Overall, though, losses in 2012 more than doubled to £1.94 billion, but Nokia CEO Stephen Elop (pictured) believes the changes made to the business, which have included cutting more than 10,000 staff and closing a number of its factories, are helping its performance.

Elop said: “We are very encouraged that our team’s execution against our business strategy has started to translate into financial results.

“While the first half of 2012 was difficult for Nokia Group, in Q4 2012 we strengthened our financial position. We remain focused on moving through our transition, which includes continuing to improve our product competitiveness, accelerate the way we operate and manage our costs effectively. All of these efforts are aimed at improving our financial performance and delivering more value to our shareholders.”

Handsets / Windows
Elop told analysts part of the company’s achievements in Q4 can be credited to a new wave of interest from network operators looking to push a third operating system – challenging the dominance of Android and iOS in the market.

During Q4, Nokia launched its first Windows Phone 8 handsets, the Lumia 820 and Lumia 920, both on 3G and 4G – with the latter initially exclusive to EE. Vodafone, O2, Three, Carphone Warehouse and Phones 4U all stock one or both devices, boosting its high street and online presence.

Quarterly research from analysts Kantar Worldpanel ComTech showed Windows Phone’s position accelerated globally – and it almost trebled in the UK during that period.

The firm’s results show in the 12 weeks to December 23, its UK share jumped from 2.2 per cent a year ago to 5.9 per cent. In contrast, rival RIM saw its share slip 2.6 per cent year on year to 6.4 per cent.

Elop said: “Operators are pushing for a third ecosystem to emerge and they are committing more marketing, training and in-store displays to help Windows Phone and Lumia grow. The feedback continues to be very encouraging as their confidence in Lumia increases.

“Operators are now more engaged, invested and participating in the conversations on how they take the Windows Phone ecosystem to create more balance for them from an overall strategic perspective and for the consumer.”

He continued: “We are pleased with the initial consumer response to our new Lumia devices, and their innovation has started to capture consumer attention. People are responding positively to our imaging capabilities and navigation features. That’s a huge focus for us, and you’re really going to see that drum beat throughout 2013.”

Mistakes
Nokia finalised its deal with Microsoft in February 2011 – releasing its first device, the Lumia 800 in November.

At the time Nokia spoke openly about the speed with which it had brought its first Windows device, then for Windows Phone 7, to market.

But Elop has since admitted this time frame in fact impeded its efforts – limiting its opportunities to add the capabilities at its disposal which would have given it a higher level of differentiation in the market.

However, he claimed that has changed with its Windows Phone 8 devices and that Nokia will use Microsoft’s strength in the enterprise sector to pursue an aggressive strategy in the B2B market this year.

Elop said: “When we introduced Windows Phone 7, we had an opportunity to add capabilities that would give us unique points of differentiation, but that opportunity was limited.

“There are a variety of capabilities in Windows Phone 8 that are not yet in Windows Phone 7, not just things the consumer likes to see, such as the more intuitive start screen, but for example the degree of encryption capabilities and business-orientated features.”

Elop also said Nokia had benefited from a more controlled roll-out of its Windows Phone 8 devices, which were initially launched in  fewer countries and with limited exclusivity periods for selected operators, such as EE.

Elop said: “It was a deliberate strategy to begin with Windows Phone 8 on a far more concentrated basis than was the case before. We’re in fewer countries today than we were in at this point with the Windows Phone 7 roll-out. We went to a lot of European countries right out of the gate.

“The early launch of the new handsets in the UK was limited to EE as a sole operator partner and was in just a couple of large retailers.

“It’s only in the last couple of weeks that this is beginning to broaden to additional operators. You’ll see that pattern elsewhere.”

Full article in Mobile News issue 532 (February 11, 2013).

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