Nokia Sees Q2 Loss, But A Lift In Lumia Sales

Nokia again struggled to keep up with rivals Apple and Samsung, despite doubling the sales of its Windows Phone-based Lumia smartphones.

The Finnish handset maker Thursday reported a second-quarter operating loss of $1 billion on net sales of $9.26 billion, a 19 percent drop compared to the $11.4 billion in net sales it reported for the same quarter last year.

Nokia CEO Stephen Elop referred to the quarter as being an overall "difficult" one but pointed to Lumia sales as a bright spot. Four million Lumia smartphones were sold during the three-month period, nearly twice the volume shipped during the company's first fiscal quarter.

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"Most importantly, we are seeing progress in our Lumia numbers," Elop said during a conference call with investors Thursday. "We sold 4 million Lumia devices in Q2, which is up from about 2 million in Q1, with growth driven by the expanded availability of Lumia 900 and Lumia 610 across markets."

Microsoft's upcoming software releases, Windows 8 for PCs and tablets and Windows Phone 8 for smartphones, were cited by Elop as catalysts for Lumia adoption. He said Microsoft's aggressive marketing campaign for each software release will place the Windows ecosystem, in general, front and center in the consumer market, creating a positive "halo effect" for all of Nokia's Windows Phone-based devices.

While it's likely Nokia eventually will launch smartphones based on Windows Phone 8, its existing Lumia series won't be able to upgrade to the new software, a move analysts believe could deal a significant blow to its sales.

When it first unveiled Windows Phone 8, Microsoft explained that certain hardware requirements, such as multicore processors, are needed to support the new OS, meaning current smartphones, like the Lumia series, will not be able to receive the full refresh without undergoing a complete hardware overhaul. Instead, Nokia and Microsoft will transition the Lumia family from its Windows Phone 7.5 OS to Windows Phone 7.8, a watered-down version of Windows Phone 8 that delivers a handful of its features.

"As we anticipate the upcoming release of Windows Phone 8, we have worked with Microsoft on a release for existing devices. We are planning for all four Lumia devices to receive an update with some Windows Phone 8 features, like the new start screen, like the core camera experiences, and updates to Nokia drive, Nokia transport and Nokia music," Elop said during the call. "This is one example of our continued commitment to enhance the existing Lumia products over time, even after Windows Phone 8 ships."

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As it braces for a potential drop in Lumia sales with the arrival of Windows Phone 8, Nokia will continue to reorganize and consolidate its operations to keep costs low, Elop said.

"First and foremost, we are taking actions to manage through this transition period," he told investors. "While Q2 was a difficult quarter, we are demonstrating our determination to carefully mange our financial resources, improve our operational model, and improve our competitiveness."

As part of this effort, Nokia in June revealed plans to cut 10,000 jobs through the end of 2013 and to close down three of its manufacturing facilities. The savings from these, and other cost-saving initiatives, are expected to be about $2 billion by the end of next year.

Looking ahead, Nokia said it projects its third quarter to be another challenging one as it continues to grapple with product transitions, particularly within its Smart Devices unit.

PUBLISHED JULY 19, 2012