Nokia Corporation (NOK)

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Nokia Plots Cheaper Lumia

http://online.wsj.com/article/SB10001424052702303425504577353371141520382.html

EARNINGS Updated April 20, 2012, 1:03 a.m. ET

Stung by Lower-Priced Asian Smartphones, CEO Plans to 'Deeply' Lower Prices of New Handsets

By SVEN GRUNDBERG And ANTON TROIANOVSKI
Bloomberg News


Nokia CEO Stephen Elop said new Lumia phones sales have been 'mixed' as the company posted a $1.2 billion loss and 29% revenue drop.

Nokia Corp.'s NOK1V.HE -4.46%newly launched Lumia smartphones are a central plank of its turnaround strategy, but early returns show these devices aren't exactly winning over consumers in a brutally competitive market.

Chief Executive Stephen Elop said Thursday that "actual sales results have been mixed" of the Lumia phones, a disappointment for a company fighting to stay relevant in a market teeming with lower-priced devices.

"We exceeded expectations in markets including the U.S.," Mr. Elop said, "but establishing momentum in certain markets including the U.K. has been more challenging."

Disappointing sales of Nokia's new Lumia smartphones will soon result in "deeply" discount the devices to spur sales, George Stahl reports on digits. Photo: Nokia.

In response, Mr. Elop said he plans to "deeply" lower prices of new Lumia devices to better compete with Asian rivals in emerging markets. He declined to specify exactly when Nokia plans to unveil new cheaper Lumia phones.

Nokia reported a €929 million ($1.2 billion) loss for the first quarter Thursday as revenue dropped 29% to €7.35 billion. It said the executive in charge of its world-wide sales force was leaving the company. The executive, Colin Giles, a Nokia veteran, has been head of global sales since January 2010 as it restructures its sales unit, "reducing a layer of sales management," Nokia said.

Nokia's standing in emerging markets has been key to the Finnish company's business. Nokia has been churning out ever-cheaper models of basic phones that can do little but call and text, such as a $21 device announced last week called the Nokia 103. And it has promised less expensive versions of the Lumia smartphones, which run Microsoft Corp.'s MSFT +5.42%new mobile operating system.

But consumers around the world are shunning basic Nokia phones and turning increasingly to cheap smartphones powered by Google Inc.'s GOOG +0.96%Android software. One of those phone makers, Samsung Electronics Co., could surpass Nokia as the world's largest maker of phones by volume this year, according to some market observers.

Mr. Elop said Nokia's nonsmartphone portfolio is at a disadvantage among price-sensitive consumers in the Middle East, Africa, Asia, and elsewhere, who are also increasingly tech-savvy. He said Nokia will be launching basic phones with increased social-networking support, such as Facebook in Arabic and improved integration with Twitter.

The Nokia 103 will go on sale in Nigeria in the next few weeks, a spokesman said. Among its promoted features include a flashlight, a dust-resistant keypad and a default volume setting that will be higher to help consumers living in places like crowded Lagos, the spokesman said.

In the U.S., Nokia invested heavily in the April 8 launch of the Lumia 900, arranging a concert in New York's Times Square featuring hip-hop star Nicki Minaj and providing more than 10,000 phones to AT&T Inc. T +0.63%to distribute to its stores.

The launch of the phone, which costs $100 with a two-year contract, hit a setback a few days later when news surfaced of a software glitch that caused some devices to lose Internet connectivity.

Nokia is offering a $100 rebate to those who buy the phone through April 21.

Last week, Nokia warned that intense competition in fast-growing emerging markets would hurt results in the first half of this year. Nokia last year decided to abandon Symbian, its in-house phone operating software now considered by many to be clunky and old-fashioned, and switch to Microsoft's new Windows Phone software. It also announced severe job cuts.

Nokia said it shipped 82.7 million devices in total in the first quarter, down from 108.5 million devices the same quarter last year. Volume in China fell 62%, North America fell 50% and Europe was down 32%.

Its smartphone shipments, which include its old range of Symbian devices as well as its new Windows-powered Lumia range, were at 11.9 million, down from 24.2 million a year ago. Average selling prices for smartphones declined 2% year-to-year to €143, while average prices for basic phones were at €33, down from €40 a year ago.

Nokia announced close to 14,000 job cuts last year in a bid to erase €1 billion from its operating costs by 2013. It hasn't ruled out further cuts and on Thursday it said it plans to accelerate and substantially deepen cost savings for its Devices & Services unit and will give further details soon.

As Nokia declines, Samsung is thriving. Earlier this month, Samsung said it expects an operating profit for the January-March quarter around the $5 billion mark.

"Samsung plays a very strong role [on emerging markets] and is one of our a principal competitors," Mr. Elop said.

According to research firm Gartner, Nokia had a 23.4% market share for mobile phones in the fourth quarter last year, when it sold 111.7 million handsets. Samsung sold 92.7 million handsets, giving it a 19.4% volume market share.

Nokia shares slid 3.8% to $3.82 in New York Stock Exchange trading Thursday, a 15-year low. The shares have declined more than 60% since the company announced its transition from Symbian last year in February.

Write to Sven Grundberg at [e-mail]

Corrections & Amplifications
Nokia reported a €929 million loss in the first quarter. A previous version of this article stated that figure as €929 billion.

A version of this article appeared April 20, 2012, on page B3 in some U.S. editions of The Wall Street Journal, with the headline: Nokia Plots Cheaper Lumia.