Nokia Hit Hard With Shift to Smartphones in Q3


The recently released Q3 mobile phone sales results from Gartner Research held few, if any, surprises. The big boys did what most expected, growing market share in the increasingly important smartphone market as consumers continue to shift from old-school feature phones.

For Finland's Nokia, a slip in overall market share was overshadowed by its significant drop in smartphone sales, from No. 3 to No. 7, worldwide. But before Nokia shareholders pack it in and run for the hills, let's take a closer look at the timing of its new Lumia rollout.

Some specifics
With a total of 82.3 million units sold in Q3, Nokia ended the period head and shoulders above Apple's 23.55 million, but lagged industry leader Samsung by 15.65 million. The difference, of course, is Apple sales consist of smartphones, and Gartner's research confirmed that even while mobile phone sales declined compared to the year-ago period, smartphones continue to pick up steam heading into the biggest quarter of the year.

Now, more than 82 million units is nothing to sneeze at, and it surpassed analyst estimates, in large part because of the success of Nokia's Asha line of touchscreen phones. While Apple, Research In Motion's BlackBerry 10, and overall sales leader Samsung continue targeting the higher-end smartphone user, Nokia's Asha was, and continues to be, aimed at the mid-range user. Even as upgraded Asha units hit the shelves, Nokia's kept the focus on the $99 smartphone crowd.

Smartphones dominate
Smartphone sales continued to grow worldwide, and grow impressively. The 3% drop overall in mobile units was overshadowed by a nearly 47% jump in smartphones sold during Q3, compared to 2011. The demand in the Chinese market -- an area of strong interest for Apple (among others) this coming quarter -- along with existing smartphone users finally beginning to trade up, will continue.

The sales increase of iPhones, Samsung's Galaxy, and RIM's jump to No. 3 (based on operating systems) reinforce the importance timing played in Nokia's new Lumia running Microsoft's Windows 8 OS. Why? Because much of Nokia's decline in smartphone sales -- from third to seventh overall with just over 7 million units -- was expected. Much like RIM and its soon-to-be-released BlackBerry 10 alternatives, Nokia's Lumia smartphone needs time to gain some traction.

Gartner, among others, recognize Nokia needs to get at least a couple quarters under its belt before the slide in market share abates. Not factored into the Nokia smartphone equation just yet however, are a few more worthy competitors -- Microsoft and Google.

Google made it clear with the purchase of Motorola Mobility is was just a matter of time before it expanded beyond its industry-leading Android OS and dove head-first into smartphone manufacturing. Like all smartphones, you'll find lovers and haters, but the Nexus 4 is a legit competitor that Nokia and other phone manufacturers can't ignore.

As for Microsoft, Nokia's smartphone partner, what the release of its Surface tablet told me was a smartphone is coming, regardless of CEO Steve Ballmer's refusal to discuss anything remotely connected to Microsoft's plans for the future. But make no mistake, a Microsoft phone is coming, and will be another obstacle to Nokia reversing its fortunes.

Why Nokia's worth your consideration
As the Gartner research indicates, a bet on Nokia is, to a large extent, a bet on Lumia and Windows 8. Smartphones are the future, and the future is now. In spite of the recent numbers, there are a couple of reasons Nokia warrants your consideration:

  • Nokia's 9.1% dividend yield is pretty darn attractive. The concern cited by some is with Nokia's cash pile dwindling each quarter, that nice dividend yield is in jeopardy -- and that's legit. But as I'd mentioned in a recent article, even with the decline in ready cash, Nokia's balance sheet remains strong.

  • Nokia is at least two quarters away from learning if Lumia is a success or not. Heading into Q4 and the holiday season will be telling for sure, but it's simply too early to know if Lumia has legs. If Lumia takes off, and you're a Nokia shareholder, you can expect a great 2013 while enjoying one of the best dividends around while you wait.

Unlike Nokia, Apple is king of the smartphone castle, and Q3 reinforced its dominance in this exploding market. But the debate rages as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

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Fool contributor Tim Brugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. 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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