Nokia Earnings: Now What?


Nokia (NYS: NOK) had another tough quarter, taking an operating loss of $750 million net sales, down 19% over the same period last year, and sinking 4% from last quarter.

That ugly financial picture was mostly due to Nokia's Devices & Services division, the part of the company that produces and sells its mobile devices. It's not news that Nokia's smartphone sales have fallen far behind those of Apple (NAS: AAPL) and the companies that produce phones based on Google's (NAS: GOOG) Android mobile OS.

Nokia's attempt to fight its way back into the smartphone market with its Lumia line of handsets running Microsoft's (NAS: MSFT) Windows Phone OS has not yet been successful. Smartphone sales are down 56% year-over-year. Lumia unit sales declined from four million in the previous quarter to only 2.9 million this period, the first quarter that Lumia sales have fallen since that line was brought out a year ago.

Even Nokia's low-end feature phones, once the foundation of the company's cell phone dominance, have been losing share in the emerging markets. Sales of those phones are down 19% from the third quarter of last year, with a revenue loss of 40%. The reality Nokia faces is that low-end Asian produced smartphones running the Android OS are pulling consumers away from feature phones.

Handset roulette: Bet it all on Windows Phone 8
It's possible that much of the decline in Lumia sales is that phenomenon often seen when iPhone sales start to flatten as consumers anticipate an upgrade from Apple. The Lumias are still based on Windows Phone 7 or 7.5, and prospective buyers may be waiting for Nokia to launch the first Windows Phone 8 Lumias. That is not expected until next month.

One thing that Nokia is counting on is mobile operators' desire for another viable smartphone ecosystem to challenge Apple's iOS and Google's Android dominance. Carriers such as AT&T (NYS: T) , Verizon (NYS: VZ) , and Sprint Nextel (NYS: S) must subsidize much of the price of the higher-end handsets to entice customers to sign long-term contracts. More competition, the carriers hope, will help bring prices down.

Nokia CEO Stephen Elop says he does not fear other companies also producing Windows Phone 8 handsets, including rumors that Microsoft may produce its own WP8 devices. "We're encouraging of HTC and Samsung and Microsoft or whomever to have devices in the market and to be making whatever investments that helps spur the ecosystem on," Elop said during an investor call.

Will it fly in the U.S.?
The U.S. is currently the largest smartphone market in the world, and one of the two largest carriers here, AT&T, is already preparing its sales staff for the introduction of the WP8-powered Lumia 920. PCWorld says that indications are that the carrier will have exclusive rights to the 920 for six months.

That would possibly leave Verizon, the other dominant U.S. carrier, with the Lumia 820, a lower-end WP8 handset. Endgadget has reported that a Verizon filing with the Federal Communications Commission shows the carrier already in the process of getting the 820 approved for its network.

T-Mobile USA currently offers Nokia Lumias, but only ones that run the Windows Phone 7 versions.

The Chinese market
China is expected to surpass the U.S. as the world's largest smartphone market in the next couple of months, and Nokia may have gotten a huge break there. China Mobile (NYS: CHL) , with almost 700 million subscribers, has signed on to offer a variant of Nokia's Lumia 920 built especially for that carrier's network.

There is more to Nokia than cell phones
One part of the company that did shine in the third quarter was its Nokia Siemens Networks division, which posted a profit of $237 million, against a $296 million loss in the previous quarter. This huge improvement came about by reducing its costs by 15% over last year, mainly by cutting staff by 14,300.

Nokia also offers the Nokia Location Platform, a map and geocoding service. Amazon (NAS: AMZN) became an NLP licensee in the third quarter. Groupon (NAS: GRPN) became a licensee earlier in the year. BMW, Mercedes, Volkswagen, and Ford (NYS: F) are also customers of Nokia's Location Platform service.

A future for Nokia?
It's safe to say that the road back to mobile phone significance for Nokia will be a steep one. Much will depend on how well its Windows Phone 8 devices will be received when launched this holiday season. If that reception is less than super-positive, then the question will be: Can Nokia use its other divisions -- and its current cash and liquid assets of $4.6 billion -- to keep it solvent?

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Fool contributor Dan Radovsky owns shares of AT&T and Nokia. The Motley Fool owns shares of Apple,, China Mobile, Ford, and Google. Motley Fool newsletter services recommend Apple,, Ford, Google, and AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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