Nokia CEO Stephen Elop has admitted sales of its Lumia smartphones have been 'challenging', as high restructuring costs lead it to post an operating loss of Eu1.34bn.
The Finnish manufacturer had warned last week of a poor first half to the year. Net sales for the period were down 29% to Eu7.35bn. In its devices and services division, which includes its smartphones and feature phones wings, net sales were down 40% to Eu4.25bn. It made an operating loss of Eu219m, compared to an operating profit of Eu729m last year.
Nokia said the losses were due to 'greater than expected competitive challenges and seasonality' , with losses driven by €1.08bn worth of restructuring changes, mainly relating to Nokia Siemens Networks. However, if the exceptional charges are stripped out, Nokia still would have posted a loss of €260m for the quarter.
The manufacturer said it would expand its Lumia portfolio for both high- and low-end price points, increase the number of countries in which it sold the devices to 45, and launch seven new Asha feature phones. It also said it would seek further cost savings in its Devices and Services department, with further details to be revealed.
Nokia CEO Stephen Elop said: ''We are navigating through a significant company transition in an industry environment that continues to evolve and shift quickly. Over the last year we have made progress on our new strategy, but we have faced greater than expected competitive challenges.
'We have launched four Lumia devices ahead of schedule to encouraging awards and popular acclaim. The actual sales results have been mixed. We exceeded expectations in markets including the United States, but establishing momentum in certain markets including the UK has been more challenging.'
Elop's admission that sales of Lumia devices were not meeting expectations was backed up by retailers and operators spoken to by Mobile this week. The businesses said Nokia needs to speed up its fightback and also move its Lumia devices out of the middle ground.
Elop added: 'The lower price tiers of our industry are undergoing a structural change, and traditional feature phones are challenged by full touch devices. As a result, we are taking deliberate measures to continue to renew our Series 40 platform, and we plan to strengthen our lineup in Q2 2012. We are making investments in our Mobile Phones business unit aimed at addressing the gaps in our offering.
'We have a clear sense of urgency to move our strategy forward even faster. We are pursuing step function changes by having launched the Lumia 610 and Lumia 900 in the first quarter, expanding market coverage, increasing advertising, introducing key customer-requested features and broadening our most successful go-to-market activities. At the same time, we have focused our efforts in the low-end of smartphones and feature phone asset to drive improved business results and conserve cash.
'We are confident in our strategy and focused on responding urgently in the short-term and creating value for our shareholders in the long-term.'
Europe continued to be Nokia's largest market, with sales worth €1.35bn in Q1. However, turnover was down 35% year on year. China accounted for the biggest slump in sales, with turnover down 70% to €577m.
Smartphone sales slumped, which Nokia attributed to 'significantly' lower Symbian sales as it focused on its partnership with Windows. Net sales were down 52% to €1.70bn, with volume sales down 51% to 11.9 million. Average Selling Price was down marginally from €146 to €143, but Nokia said this was offset by the Lumia's ASP of €220. Gross margin declined significantly from 28.9% to 15.6%, which Nokia said was driven by greater price erosion within its Symbian range of devices.
Its feature phones wing fared better but was still hit by declining sales. Turnover was down 32% to €2.31bn, with volume sales falling 16% to €70.8m. Nokia blamed this on increasing competition across China and Europe, singling out entry-level smartphones and touch-screen feature phones. However, gross margin fell at a slower rate than in its smartphone department, down by two percentage points to 25.9%.
Editor: Graeme Neill