IDC says Nokia’s 2Q results show “business turned bad”

Nokia released its second-quarter 2011 results last week. Total unit shipments were down 20% year on year to 88.5 million units, the worst result since the third quarter 2006, according to IDC’s Worldwide Quarterly Mobile Phone Tracker.

Smartphone shipments were down 34% to 16.7 million units. Feature phones declined 16% to 71.8 million units, the lowest volume since 2005. This led the company to an operating loss of €487 million.

IDC estimates Nokia’s overall worldwide market share to be 25% in 2Q11, down from 34% a year ago. In the smartphone segment, Nokia’s unit market share is estimated to be down to 16% in 2Q11 from 37% in 1Q10, with Nokia losing the leadership to Apple in the segment for the first time.

In Western Europe, one of the most important regions for Nokia, IDC estimates Nokia’s market share to be 24% in the quarter, down from 37% in 1Q10. In the smartphone segment, market share is estimated to be down to 15% from 40% in 1Q10, which sees Nokia slip to third position in the smartphone segment, behind Apple and Samsung.

IDC’s European mobile devices research manager, Francisco Jeronimo, commented: “These very poor results show how quickly a business can turn bad for a company that does not understand the trends ahead of competitors or if it is too slow to react to those trends in a such fast moving industry.

“Nokia is bleeding on all fronts,” continued Jeronimo. “In the smartphone segment its portfolio is not attractive in terms of user experience, ecosystem, and even price. With the company starting to struggle in 2009, a price differentiation strategy was pursued to keep volumes high, but even this is not working anymore. Consumers can already find better Android devices at lower prices than Nokia’s smart devices. This could get even worse over the next few quarters as Apple is rumoured to be launching a cheaper iPhone in September.

“If this is true, Nokia will continue to lose marketshare until the new platform from Microsoft is fully deployed. From a feature phone perspective, the high volume driver for Nokia, the situation isn’t expected to get any better. The segment will continue to decline quickly as the trend toward smartphones accelerates in emerging markets and as competition from Samsung and Chinese makers ZTE and Huawei continues to threaten Nokia products. In Western Europe, for instance, Samsung is expected to strength its leadership in the segment in 2Q11, to 46% market share, compared with Nokia’s expected 34% share.”

Over the next few quarters, IDC estimates that Nokia will continue to lose marketshare in both segments, risking its worldwide leadership to Samsung as soon as 3Q11. Samsung’s smartphone devices are flying off the shelves in developed markets and its feature phones will continue to challenge Nokia in emerging markets, noted Jeronimo.

In the long term, IDC expects a less gloomy future for Nokia. Jeronimo commented: “The new platform will play an important role in Nokia’s results next year and there are strong signs that it could reverse the current situation. First, because Microsoft got the basics right; the Windows Phone user experience. Feedback from end users is very positive. Microsoft managed to create an experience that is different, attractive, and based on a user interface that is easy to use compared with the iPhone or any Android device, though the operating system stills performing badly. Currently it lacks a strong ecosystem and a full range of devices at different price points. This will change over the next few quarters as the number of applications is growing fast and a wider range of devices from Samsung, HTC, and Nokia will be announced from October with the Mango release.

“Second, Nokia and Microsoft will be strongly supported by mobile operators. The alliance between the two companies is seen as the one most likely to challenge the dominance of Apple and Google. A full range of devices from Nokia, subsidised by operators, will definitely have a positive impact on Nokia’s results.”

However, Jeronimo concluded: “The question no one can answer right now, however, is whether it is too late for Nokia. Experience has shown that it is very difficult, or even impossible, for a company to regain its leadership after it has lost it.”

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