Nokia results good, but not encouraging

Nokia released its second quarter results yesterday. Total handset sales increased by 8% to 111.1 million units. Smartphone sales increased by 42% to 24.0 million units and traditional phones stayed flat at 86.4 million units compared to last year’s second quarter. Average selling price (ASP) was down to €61 from €64 in 2Q09.

However, research firm, IDC, stated that despite the growth, the results are not encouraging from a European perspective. Francisco Jeronimo, research manager for European mobile devices at IDC, said Nokia was able to increase sales in Europe by 12% from the previous year, but at a significantly lower growth rate when compared to Apple, Samsung, LG, RIM, or HTC.

He commented: “Nokia has therefore been losing market share over the past two years with particular impact on the high end segment of the market, where Apple, HTC, and RIM are performing extremely well. The company hasn’t been able to keep pace with the fast growing smartphone segment, and the delay of the Symbian^3 will continue to slow down Nokia’s growth in this segment. To face competition and keep volumes up, Nokia has lowered its prices and consequently value and profits fell.”

In Western Europe, one of the strongest regions for Nokia, Jeronimo noted the competition has been fierce and Samsung gained already the market leadership in some major countries. “This shows how difficult it has been for Nokia to maintain leadership in a very competitive environment. In 1Q10, Nokia’s volume market share in Western Europe fell to 33% from 39% in 1Q09, but value market share fell nine percentage points to 30% in 2010 from 39% in the same period a year earlier. This decline was experienced in both the traditional mobile phone and smartphone segments.

“While Nokia sales have been slowing in volume and value shares, its competitors, particularly Samsung and Apple, are increasing volumes and value on traditional phones and smartphones, respectively. This shows how competitive these companies have become and how they succeeded in understanding European consumers and bringing them the products they value, while Nokia still struggles with platform releases.”

In the smartphone segment, Nokia’s volume market share fell to 41% in 1Q10 from 57% in 1Q09 in Western Europe. In terms of market value, Apple is now the number one smartphone player, with 37% market share in the first quarter of 2010, while Nokia gained only 33%.

The story is even worse in the traditional phones segment, said Jeronimo. Nokia already lost market leadership in the segment to Samsung. During the first quarter of 2010, Samsung gained a comfortable 10% difference against Nokia by reaching 40% market share in terms of volume, while Nokia got only 30%. Samsung is even better positioned than Nokia in terms of market value in this segment, with 43% market share in 1Q10 against Nokia’s 26%. Despite the price cuts, Nokia hasn’t been able to keep its market leadership in the region, and Samsung is already the market leader in several Western European countries, shipping more units than Nokia while also increasing market value.

Jeronimo continued: “Second quarter results show that nothing has changed and Nokia continues to be the second player in terms of market value in this region as volumes grew at a lower rate than its competitors and ASPs fell.”

The upcoming quarters don’t look bright for Nokia, remarked Jeronimo. “In June, the Finland-based company lowered its profit outlook for this year due increasing competition from Apple (AAPL) and RIM (RIMM). The delay on Symbian and MeeGo platforms will worsen Nokia’s market positioning as devices will come out too late to compete with the rising sales of the iPhone 4 and Android.

“On the other hand, Android handsets from HTC and Samsung will make their way to consumers attracted by excellent user experiences. Although this may well change in 2011 if Nokia is able to attract consumers with a new portfolio of handsets providing the promised excellent user experience,” Jeronimo concluded.

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