Nokia returns to profitability on weak sales

Nokia managed to turn a net profit of $270 million in Q4 2012, which should be good news for investors as the Finnish phone maker reported a loss of $1 billion in Q4 2011. 

However, Nokia’s revenue fell 20 percent and smartphone sales plunged 55 percent. The company will not pay out dividends for 2012 to save a bit of cash. Nokia sold 15.9 million smartphones in the quarter, down from 19.6 million a year earlier. But the company only managed to sell 4.4 million Lumia handsets, based on Windows Phone. 

The company’s transition from Symbian to Windows Phone is proving a lot more troublesome than expected. Lumia sales are growing too slowly to cover the gap and Symbian is practically dead already. Nokia also announced that the 808 PureView was its last phone based on Symbian, so now it’s pinning its hopes on Windows Phone 8 Lumia gear and affordable S40-based Asha series phones. However, even the Asha series doesn’t seem to be doing too well. Nokia saw its sales in China fall 69 percent year-over-year.

Although the company is back in black, the market reaction to Nokia’s earnings report has been anything but positive. At press time Nokia shares were deep in the red, €3.13, down 4.9 percent on top of a 5.4 percent drop yesterday. UBS cut Nokia’s price target to €2.8, down from €3. The market clearly feels that the latest report is just more of the same, in spite of some positive figures.

Nokia faces numerous challenges on its road to recovery. Lumia sales are growing, but at a very slow pace. Windows Phone recently overtook RIM’s Blackberry in Europe, which really isn’t saying much since Blackberry is also on life support. Nokia’s smartphone average selling prices remain low, indicating that most consumers are going for low-end or mid-range phones rather than flagship models. 

Although the Windows Phone platform is becoming increasingly competitive, Nokia is simply running out of time. Smartphone penetration is nearing 50 percent and the market is maturing, leaving very little room for new platforms and growth. Analysts are even expressing concerns about Samsung and Apple, on fears that the smartphone market is overheating. In such a climate, Nokia can’t hope to turn things around on a dime and even as it is starting to offer genuinely competitive WP8 smartphones, it is starting to look like it’s too late to the party.