Lumia Lights Up Earnings Though Symbian’s Legacy Sinks Stock

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Nokia’s (NYSE:NOK) Lumia series of smartphones launched last quarter and failed to create much of an impact as the company’s Q4 operating profits nosedived 56% over the same period last year despite receiving a $250 million payment from Microsoft (NASDAQ:MSFT) as part of the Windows Phone deal. The largest cellphone maker by volume announced its Q4 2011 results Thursday and put total Lumia sales at “well over 1 million”. However, this wasn’t enough to compensate for the flagging sales of older Symbian smartphones in the market, as the overall smartphone sales fell 31% year-on-year to just under 20 million. In comparison, Apple (NASDAQ:AAPL) sold over 37 million iPhones in the bumper holiday quarter.

The comparison may be a tad unfair, considering that the Lumia hasn’t had enough time in the market to create a big impact, but this shows what it is up against. Apple and the horde of Android smartphones in the market have created two firmly entrenched ecosystems that customers have familiarized themselves with. To create a third ecosystem with Microsoft, Nokia will now have to battle long and hard but the first signs of this partnership coming along are nonetheless encouraging.

See our complete analysis for Nokia stock here

Lumia Sales Show Promise

Several analysts had speculated following Lumia’s launch in mid-November that it would sell 1 million by the end of the quarter. [1] In the lead up to the earnings call, we had a BNP Paribas survey reveal that only 2% of Europeans are interested in buying the Lumia 800. [2] However, the first official sales statement on better-than-expected Lumia sales puts the matter to rest and shows promise in Nokia’s long-term strategy as the company launches the Lumia in more countries and puts its global sales force to work.

Nokia announced the Lumia 900 at the CES 2012 and anointed AT&T as the first carrier to launch the smartphone in the coming months in the U.S. (see Nokia Ready for LTE Smartphone Boom, Announces AT&T as First Major Carrier) The Lumia 710 was made available earlier this month with T-Mobile. Further, the Lumia series will also be made available in Canada, and Rogers and TELUS are already on board for the launch. We earlier discussed how adding more carriers and launching the phone in different countries will help Nokia win back market share in developed markets. (see Nokia’s New Year Resolution: Spread Carrier Love)

Dual-Sim Drives Emerging Markets

Nokia saw its revenues decline 22% year-on-year in the emerging markets as the company cut down prices to compete with cheaper priced Chinese rivals. However, a sequential double-digit growth in its dual-sim phones propped up the mobile phone volume for the quarter to 87.7 million – a little higher than same period last year. Nokia was late on the scene when dual-sim phones became a rage in the developing markets; however, its better brand value in these markets should continue to help it wrestle and win back some of the lost share to the Chinese and local vendors. (see Nokia’s Dual SIM Phones Could Help Add Some Life to Shares)

Nokia’s market share in developing markets has declined from what was once more than 45% in 2008 to around 27% in 2011. We have also seen its market share in developed markets fall in tandem; but emerging markets at 38%, contribute the most to our new $6.50 price estimate for Nokia compared to 13% by developed markets. So, steps such as the acquisition of Smarterphone AS, a Norway-based mobile Operating System developer to stem the weakness in emerging markets should positively impact Nokia’s stock value in 2012.

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Notes:
  1. Nokia shares decline on Analyst report of Lower-Than-Expected Lumia Sales, Bloomberg, November 22nd, 2011 []
  2. New Nokia smartphone fails to turn tide, Reuters quoting survey conducted by Exane BNP Paribas, December 21st, 2011 []
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