Nokia reports loss in face of stiff competition

The company is planning to make changes to both its feature phone and smartphone portfolios

Nokia reported a sales drop and a loss during the first quarter, as it struggles to sell cheap phones as well as Symbian-based smartphones, and Windows Phone sales remain small.

The company reported sales of €7.4 billion (US$9.7 billion), down 29 percent year-on-year, making a net loss of €929 million, compared to a net profit of €344 million a year earlier.

The report comes after a difficult week for Nokia. On April 11, the company lowered its expectations for the first quarter because of surprisingly weak sales, including those of its cheapest phones in India, the Middle East and Africa and China.

Over the last year Nokia has made progress on its new strategy, but the company has faced greater than expected competitive challenges, it said in a statement.

The lowered expectations resulted in Moody's downgrading Nokia's credit rating. Nokia replied by saying that its financial position is still strong, with €4.9 billion in net cash, down 24 percent compared to the end of March last year.

Specifying when or if Nokia will get in cash trouble is difficult to say, because analysts don't know how bad things are going to get before a possible turnaround.

"We don't actually see Nokia getting into financial trouble yet. Basically, things would have to get a lot worse before the company would actually get into a situation of cash shortage," said Richard Windsor, global technology marketing analyst at Nomura International.

Nokia sold a total of 82.7 million mobile phones during the first quarter, including 11.9 million smartphones. That compares to 108.5 million phones, including 24.2 million smartphones, during the same period last year.

Nokia also sold more than 2 million Windows Phone-based Lumia devices. The company has seen sequential growth in Lumia device activations every month since starting sales in November 2011.

While Nokia exceeded sales expectations in markets including the U.S., establishing momentum in others including the U.K. has been more challenging, according to Nokia.

To boost Windows Phone sales it will expand market coverage, increase advertising and introduce more products, it said. To change its fortunes Nokia is also to planning to strengthen the feature phone line-up during the second quarter.

Nokia also increased savings in the Devices & Services unit, and will share "further details as quickly as possible," it said.

The success of product launches in the U.S. and China are key to a more rosy future for the Lumia family because the size of those two markets, according to Pete Cunningham, principal analyst at Canalys, who added that Nokia also needs to start shipping the Lumia 610 as soon as possible.

When it goes on sale sometime during the second quarter it will be Nokia's cheapest Windows Phone so far, and will help drive volumes, Cunningham said.

Nokia now has a clear sense of urgency to move its strategy forward even faster, it said.

Send news tips and comments to mikael_ricknas@idg.com

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