Nokia Q2 2010 results - profits down but smartphone sales up

Published by Rafe Blandford at 11:46 BST, July 22nd 2010

Nokia has released their Q2 2010 results, reporting an operating profit of €295 million, with net sales €10.0billion (up 1% Year-on-Year). Nokia's device and service division's profits were €643 million, down 16% year on year. Margins in devices and services were 9.5% (down 2.7% YoY and down 2.6% QoQ). Converged devices sales (smartphones) were significantly up, at 24 million, compared with 16.9 million units in Q2 2009 (so up 42% YoY) and compared with 21.5 million units in Q1 2010 (up 12%, QoQ). As such, worldwide smartphone marketshare was 41%, stable sequentially and year on year. Full story and comments below.

The most obvious numbers in Nokia results is the 31% fall in profits, €295 million, down from €427 million, and a 40% decrease in EPS (earnings per share). This is primarily due to a fall in profits in Devices and Services, a consequence of decreased margins. Nokia's results were approximately in line with market expectations, with profits slightly lower then expected, but offset by slightly higher sales than expected. In June Nokia lowered its Outlook for Devices and Service in Q2, preparing the market for lower margins and resultant lower profits.

Nokia's smartphone performance at the high end remains poor in the face of competition from Apple, RIM and Android powered devices. However its overall smartphone performance, especially in the mid-tier, remains strong with sales increasing to 24 million, in line with market growth and maintaining Nokia's market share at 41%. Nokia is now looking forward to the release of the N8 and other devices which should improve its competitiveness at the high end of the market.

Olli-Pekka Kallasuvo, Nokia CEO, said:

"Despite facing continuing competitive challenges, we ended the second quarter with several reasons to be optimistic about our future. For one, the global handset market has continued to grow at a healthy pace, led by some of the less mature markets where Nokia is strong. We are also encouraged by the solid second quarter performance of our Mobile Phones business, helped by an improving line-up of affordable models.

In smartphones, we continue to renew our portfolio. We believe that the Nokia N8, the first of our Symbian^3 devices, will have a user experience superior to that of any smartphone Nokia has created. The Nokia N8 will be followed soon thereafter by further Symbian^3 smartphones that we are confident will give the platform broader appeal and reach, and kick-start Nokia’s fightback at the higher end of the market."

Nokia confirmed the guidance it gave in June for the outlook for the rest of the year. It expects overall mobile device volumes to be up 10% in 2010 from 2009 and that its market share will remain flat. Nokia expects the operating margin in Devices and Services to be between 7% and 10% in Q3 and 10-11% in 2010 as a whole (suggesting it expects a more positive Q4 2010).

These margins are lower than was predicted at the start of the year, reflecting Nokia's poor performance in high end devices. High-end device have the largest margins and Nokia is currently facing fierce competition from iOS, Blackberry OS and Android powered devices. The situation is expected to improve as the N8, other Symbian^3 devices and the first MeeGo device become available. However they are unlikely to have a significant impact before Q4 2010 and their full effect may not be felt until Q1 2011. As such Nokia Q3 results are unlikely to see any major changes from Q2.

Points of interest

Nokia mobile device volumes were 111.1 million units, up 8% year on year and up 3% sequentially. This is set against estimated industry volumes of of 338 million units, up 14% year on year and up 3% sequentially. Nokia's overall (phones) market share was 33%, down 2% from Q2 2009 and unchanged from Q1 2010 (note: Nokia changed the way in calculates market share earlier this year).
Average selling price (across all devices) was EUR 61, down from EUR 64 in Q2 2009 and down from EUR 62 in Q1 2009. Nokia says the year on year change was primarily caused by sales of a higher proportion of lower priced smartphones. The quarter on quarter change was mainly the result of price pressure, especially on higher end smartphones.

The average selling price of Nokia's smartphones was €143, down from €155 in Q1 and €181 in Q2 2010. This reflects the increased proportion of cheaper smartphones in Nokia sales. Nokia says this is consistent with their strategy to take the smartphone to a wider group of consumers.
Smartphone shipments were 24.5 million (up from 21.5 million in Q1 2010 and 16.9 million in Q1 2009). The year-on-year increase in smartphone sales was 42% and the quarter on quarter increase was 12%. The increase was driven by improved sales of mid-tier smartphones. Nokia did not release a breakdown of Nseries and Eseries sales (we have estimated them on the graph below).
Worldwide converged device (smartphone) marketshare was 41%, flat sequentially and year on year. Estimated global market volume (i.e. all manufacturers, all markets) was up to 59 million from 41 million year on year and from 52.6 million sequentially. This means that Nokia's smartphone sales grew at the average pace of the overall market.
In Q2 smartphones accounted for more than 50% of Devices and Services net sales (€3,429 million versus €3,369 million).
Ovi Maps with free navigation has been downloaded 17 million times. Nokia also began including the free navigation version in all its GPS-capable smartphones out of the box.
The most popular devices in the Ovi Store have access to 13,000 items of content. The Ovi App Wizard achieved 1 million downloads in just 10 weeks, with partners publishing 'thousands' of apps.

Nokia sales

The numbers for Nseries, Eseries and 'numbered' (which also includes Xseries) devices are estimated for Q1 and Q2 2010.

Notes from the earnings call

Kallasvuo, "Nokia will make a come back at the higher end of the market".
Nokia will bring a family of Symbian^3 devices to the market and aim to ship 50 million Symbian^3 devices. Symbian^3 family of devices 'in place' for Q4.
Nokia is leveraging "a software centric approach". The Symbian^3 software will be uniform across the range making it easier for Nokia's internal teams to maintain a "cadence of device releases". It was also mean that it will be "much easier for third party developer to make applications work across the range of Symbian devices".
Symbian is about leveraging scale and covering a broad market foot print. MeeGo is about leveraging speed of innovation at the high end. They have "different sweet spots".
It "takes more than a good product to succeed", logistic and distributions channels are important and "Nokia excels in these areas".
Nokia has improved its performance in mobile phones (Series 30 and Series 40) this quarter in the face of fierce competition, especially from Chinese manufacturers. The successful launch of the Nokia C3 was a particular highlight.
Looking to the future Kallasvuo said that Nokia was coming to the "end of a painful product transition at high end". "The N8 will mark the beginning of our renewal and going forward I believe we will regain leadership in our industry".
Asked about the US smartphone market Kallasvuo indicated that Nokia regard the market as important, but Nokia ave faced challenges with operator relations and testing. He noted that earlier Symbian generations have not been able to get though operator testing in the US in a competitive time frame. This should improve with Symbian^3 and future generations. Symbian will be important in the US, but "we will need MeeGo in the US".
N8 will start shipping towards the end of Q3. However the major impact (in terms of geographic launches and sales) will be in Q4. Nokia plan to launch the device with an array of services and software, both from Nokia and external partners.
Asked about the relationship between Symbian and MeeGo, Kallasvuo said that "Symbian and MeeGo are the best combination for smartest devices. Our focus with MeeGo is for the highest end smart devices, beyond what is considered the current smartphone. Symbian is and will continue to be our core software platform; we will continue to have Symbian devices across our entire portfolio, both at the high end and low end, including the strong possibility of Nseries devices. Trying to tackle too much with one platform has proved challenging [in the past], but we do need to manage the dynamic here, it is about managing the road map."
With Qt Nokia "aim for simplicity and productivity through common APIs. Developers can utilise the same APIs to port applications between Symbian and MeeGo without significant rewriting. However there will be richer functionality in MeeGo and related APIs to address them."

Overall market

Nokia's increased smartphone sales should mean that Q2 2010 is the first quarter in which more than 25 million Symbian were shipped (estimate: 26.5 million). Here is a chart illustrating the sales of smartphone by platform over the last three years.

smartphone stats

News Discussion

MemphisX

It doesn't matter...nokia is doomed and symbian is dead...

(irony off) People and especially fanboys will never understand that the needs people have are not always the same to just buy one smartphone (iPhone) or another platform (Android). Some people just want their job done and Symbian can do that despite their old (but still efficient) UI. Not everyone is a geek and wants to have the best (citation needed :p)

Unregistered

Down 40%. :-o

Don't worry Symbian^3 will save the day!

Unregistered

Since the N97 Nokia have been competing on value and price, shifting low cost Symbian handsets to bridge the period whilst they develop the more profitable products.

So, a good rearguard is being fought, and this was easily predictable, selling more phones for less money will result in higher shipments and lower profit. It keeps Symbian out there and in the hands of millions whilst Nokia regroup. Seems pretty positive, basically recovering from the N97 f*** up.

manual_

Quote:

Originally Posted by MemphisX

I'd argue that it's actually the geeks who are willing to live with clunky UI, unstability that forces them to tweak the device and all other kinds of problems they can solve and be proud afterwards.
It's normal people, who want their job done quickly, efficiently who will will dismiss Symbian as too high-maintenance and go for more usable, stable, faster and visually appealing platforms.

Mr Mark

@Manual

Given the lower ASP for the smartphones it actually appears to be the 'normal' mobile customer who is buying these phones.

Perhaps the UI really isn't as bad as some people make out? Apparently 24 million people thought so this quarter.

clonmult

Quote:

Originally Posted by Mr Mark

Aye, look at the increase in sales of the "numbered" models and the drop in sales of the N series.

My step son has had his 5800 for a year. He's not even vaguely technical, he just about knows where the power switch is on his PC and XBox, but doesn't know where the oil and water go in an engine .... despite his lack of any technical ability, he's liked the 5800.

However he's intending to change phones soon. His choice surprised me .... BLACKBERRY!!!!

RollerSMB

Quote:

Originally Posted by manual_

No offense, but that would be a pretty weak argument. Just look around, the people who have 5800 or similar (eg, my wife and daughter) don't install things on them, and they just work. It's quick and efficient to make a call. What's more, it works well as a *phone*, ie good reception. I'd be willing to bet that normal people care more about the stability of a phone call than the stability of running apps.

I understand the frustrations of people who got sucked in by the n97, (I own one myself!), but there's no need to lose objectivity. Sales are sales, and you can't deny that 24 million is a decent chunk. Nokia are doing something right here, and hopefully they can win back the nerds that with the n8. The idea of a discount for n97 users that was floated here somewhere, now that would be a great way to win back some of the more vocal bashers.

Bulakbuk

Nokia was expecting these figures in the first place.

The time has come for Nokia to change it's structure, and by that I mean change the person in charge of the whole operation. Nokia failed to impress crowds after the era of N95 and even N82; for one thing they only released a repackaged version of these devices. Plus the fact that they continue to change platforms and dumping older ones thereby making them seem obsolete.

N8 hasn't been released yet, but already Nokia was talking of the Symbian^4! Now that is a very dumbfound move in my opinion.

It's about time Nokia prove it's competitiveness in the Phone Manufacturing arena, release cutting edge and innovative UI in all it's devices that will serve a common platform but contains the "Human Technology" smartness that once was a shout out.

Tacsiyapo!!!

KPO'M

The shares are up a bit since Nokia's smartphone market share came in a bit better than expected. OPK is calling for the rumors of his exit to go away, which to me is a sign that they are very real. The drop in ASP is huge, and a lot is riding on the N8 launch.

If someone purchases a 5800, never installs anything on it, doesn't use the browser, and just uses it as a basic phone, it may go down as a "smartphone sale" on paper but it doesn't do much for Nokia's margin. That customer wasn't valuing the phone as a "smartphone" and thus won't pay "smartphone" prices for it. That's the real issue that Nokia needs to address long term. The market for smartphones is exploding, but Nokia to date has missed out on the most profitable part of that growth.

Unregistered

A customer that buys a 5800 can see the word "XpressMusic" and knows what its about. They might not use every bit of its capability but they dip in here and there and use it for Facebook etc, and video, listen to music. It's definitely more than a basic phone to them.

It's like a Blackberry user, buys the thing because of the messaging capability - and because all their peers have one.

Unregistered

I think the story of OPK orbituary is just a revenge started by eldar murtazin.

Jimmy1

Quote:

Originally Posted by MemphisX

Not everyone is a geek and wants to have the best

I smell a new marketing tag line.

"When you don't require the best, (shrug) you can settle for a Nokia."

viipottaja

Very interesting stuff in the last 4 bullets on the call... Hopefully something interesting among those N8 launch services & software.. Also interesting to see that Symbian will compete with the likes of Android and Apple in the "lower-high end" :) as well - was kind of expecting that all along myself and was a bit puzzled by all the "Symbian is for the low end only" talk.

Unregistered

Quote:

Originally Posted by Mr Mark

Typical statement from you. The earnings statement clearly shows a rise in the low end@margin series, while the hi-end devices made no growth or negative growth. Normal ppl just don't care if it is nokia, only if it is cheap, and that is how nokia stayed afloat this quarter - by selling itself cheap. Any investor would be absolutely pissed at these results. Make more but earn less???? Do u work for their pr department?

-Gene

Mr Mark

Quote:

Typical statement from you. The earnings statement clearly shows a rise in the low end@margin series, while the hi-end devices made no growth or negative growth.

Yes I know, what's your point?

Quote:

Normal ppl just don't care if it is nokia, only if it is cheap, and that is how nokia stayed afloat this quarter - by selling itself cheap.

Yes I know, what's your point?

Quote:

Any investor would be absolutely pissed at these results.

Yes I know, what's your point?

One day you're going to be able to follow the context of a thread - which was that 'normal' people not 'geeks' buy Nokias. Probably about the time you finally figure out how to register an account I would imagine.

Unregistered

If Nokia's strategy is to dominate low and mid-tier market with Symbian in order to mature the people for future Symbian generations, they are doing extremely well actually. Oh wait...it IS their strategy.

Considering that thay haven't released a single flagship device in over a year, and that the last one was a "disaster" in the eyes of the american tech bloggers, they are exceptionally. In fact they are doing so well, that it is almost an insult to both Apple and HTC. Yes, they have higher margins right now, but they will be forced to lower them in the future if Nokia's coming high-end devices are successfully.

Yes, it has been a while to build momentum and execution, but here comes JUGGERNAUT!

Time to buy those Nokia shares now, I predict a good rise.

Unregistered

nokia used to be succesful an this got them to Big Headheaded an now think any mobile they produce will be Successful,but its now showing them they have got to Change there ideas very Quickly but knowing Nokia it will be to Slow,they never seem to Compete in certain sections nowdays,we got the Pixon 12 an Satio they 12 mega-pixel camera mobiles but what did Nokia do,Released nothing to Compete with these mobiles,then about a year later we are going to the Nokia N8 which is to late from Nokia,they Decided to try compete with Apple an Android mobiles an released the N900,but Nokia made the N900 to Bulky as people want this an Pocket sized mobiles nowdays,they then did another mistake with there first 8 mega-pixel camera mobile the N86 instead of Designing an new mobile they just upgraded the N85,they like using Refurbished materials in the Plastic mobiles but because of the iPhone Success people want Metal Bodies on Mobiles an that another thing Nokia as got to realise,after the N8 being in Metal there future mobiles better be same in there Top Class Mobiles or people will look elsewere again,hope we do get a better mobiles at Nokia in there near Future

Unregistered

Are you unable to read and understand?

I hope you just didn't read the article. Because if you did, you clearly haven't understood anything, let alone being able to count - Nokia sold 24.5 million smartphones in Q2! Which is more than _3 times_ as much as Apple and Nokia haven't even released any new flagships yet.

Yeah sure Nokia is doomed...hahahaha.....NOT!

Unregistered

Quote:

Originally Posted by Mr Mark

Yes I know, what's your point?

Yes I know, what's your point?

Yes I know, what's your point?

One day you're going to be able to follow the context of a thread - which was that 'normal' people not 'geeks' buy Nokias. Probably about the time you finally figure out how to register an account I would imagine.

probably about the same time you figure out not everyone wants to register accounts, or even use fake accounts, and just take advantage of the easy route. At least i sign. But we should all bow to your wisdom, shouldn't we? Btw, how's your stock analysis on this company going?

The real point of an earnings call is to hilight what they did right and wrong this past quarter, and the market has spoken pretty well on this, haven't they - selling to 'normal' ppl at the expense of quality and growth just doesn't cut it. I would more qualify 'cheap' people on this, which really describes nokia's situation. Would you qualify the people that want to buy the high end product but can justify nokia as 'not normal'? The only thing they did right was they avoided a loss. You can be a cheerleader all u want mark, but i doubt it will help symbian and nokia dig out of their hole.

-Gene

Unregistered

Quote:

Originally Posted by Unregistered

I meant "can't justify nokia"....

-Gene

Stuntman

Quote:

Originally Posted by manual_

I also share this sentiment. When I first got my N97, I was frustrated with its instability. Now months later, I have gotten it to work the way I want and am very happy with it now. I definitely would not recommend it to most other people though unless they are really willing to spend a lot of time tweaking it and dealing with instability issues on the way.

Nokia seems to be doing rather well for the most part except for the high end smartphone market. I think this market will grow the most as more and more people over time will want their phone to do more than make a call. I see many web sites provide apps for smartphones. Most of these websites have apps for the iPhone, Android and even Blackberry. However, very few and none of the ones I frequent have anything for Symbian. Even if Nokia uses Symbian for mid to low end smartphones, there does not seem to be much support or apps for Symbian users compared to iPhone or Android. I can live without apps for my phone as I can simply browse the web site or mobile web site. However, I am disheartened by the lack of apps and I would expect many others would be as well and may choose a smartphone that has greater app support.

Unregistered

Does anyone have the sources of the data behind the numbers of the graph for smart phone OS share?

chilko

anyone saw this in El Reg?

great interview with Juhani Risku by Andrew Orlowski - http://www.theregister.co.uk/2010/07...nifesto_risku/

Rafe

Quote:

Originally Posted by Unregistered

Does anyone have the sources of the data behind the numbers of the graph for smart phone OS share?

I use a spreadsheet to keep track of the numbers. They come from either the manufacturers themselves (where available) or the figures released by the likes of Gartner / Canalys etc.

There are some variances between these sources at times, but generally they are not that significant (+/- 0.5 million). Good enough for a quick glance chart / graph anyway.

The figures for Q2 2010 do include some estimates for WebOS and Windows Mobile. Symbian number are Nokia results + a bit for SE and MOAP phones (I actually used last quarters delta numbers as a basis, good Vivaz sales might mean its a bit more than I've guestimated).

Apple released it figures earlier this week. RIM released the week before (although their quarterly number are slightly displaced in the calendar).

Unregistered

What about the Google/Android numbers?

Full thread: 48 Comments / Post New Comment

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