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Corporate Jul 21, 2011

Nokia’s burning platform is sinking

By Anderson

Mobile phone analysts expected Nokia's second quarter sales to be lower but were shocked at the collapse in sales and laid the blame at the feet of chief executive Stephen Elop.

The ailing mobile phone giant might have beat financial expectations, and investors sent the stock higher. That will be of little cheer to Nokia stockholders who have seen the value of their shares cut in half since February.

While the financials might not have been as grim as expected, mobile industry watchers painted a much darker picture of the results.

Kimberly White/Reuters

Hong Kong-based mobile analyst Tomia Honen said on Twitter, "Nokia Q2 Results - WOW WOW WOW this is FAR WORSE that we expected. Nokia reports operating LOSS of 487M Euros (About 700M USD). Carnage!"

Net sales might have only declined by 7%, but profits dropped by a stunning 41%. Even worse, smartphone volume dropped 34%. The full results are available on the Nokia website.

"This is a world record we are seeing now, of a global brand being destroyed (by its CEO)," he said, adding that this is the first time since 2006 that Nokia has not sold 1m mobile phones a day. Handset sales declined from 100m in the first quarter to 88m in the second quarter, he noted.

He ripped into Elop on his blog. He wrote:

"Yes, Stephen Elop, you Microsoft Muppet. You must be fired and sued and barred from any executive position in any publically traded company."

Apple has dethroned Nokia as the global leader in smartphone sales, and that's not even counting the challenge Nokia faces from the wide range of handsets using Google's Android mobile operating system. Nokia could soon lag in third place in smartphone sales behind both Apple and Samsung, which has seen strong sales of its Android-based Galaxy line.

Mobile analyst Carolina Milanesi said, "Considering expectations for SAMSUNG Nokia could go from number 1 to 3 in smartphones in one quarter. Drop in pricing has not helped enough."

Ironically, despite the deep drop in sales, the financial results were better due to an increase in licencing revenue, including payments from Apple after a patent settlement, Reuters reported.

A decline in sales was widely expected as Nokia is in the middle of a confusing transition from its own ageing Symbian mobile operating to Windows Mobile, a move championed by former Microsoft executive and now Nokia CEO Stephen Elop. Consumers are shunning Nokia's existing line of smartphones as they worry about how well supported the they would be after the transition. Elop said Nokia will continue to sell and support Symbian handsets through 2016, according to Bloomberg.

Why is the transition confusing? For one, Nokia had already been working on a next generation operating system with Intel, called Meego. They even previewed a handset using the OS, the N9, but Elop said no matter how successful the N9, the future of Nokia smartphones is Windows Mobile.

The shift to Windows Mobile raised questions at the time it was announced, and the controversial move is generating even more controversy in light of the results.

Technology entrepreneur and investor Martin Varsavsky asked, "Nokia: how can OS (Windows Phone) that sells 15K phones per day will save a company that sells a million phones per day?"

Vikas Gulati has this response on Twitter to our new tech-focused tweets FirstPostTech:

It's already toast @firstpostin: #Nokia's platform is burning! Analysts blame dismal second qtr results on new CEO http://t.co/jla7BE7

Do you think it's already too late for Nokia?

My main phone is a Nokia, an old but very capable N82. It will soon be time for an upgrade. I tried the N8, actually over dinner in Helsinki before it was released. Impressive, but that was before Nokia announced the switch to Windows Mobile. I love open-source and would really like to buy an N9, but who is going to create apps for it when Elop has basically said it's dead on arrival? When you upgrade, will your next phone be a Nokia? If so, why?

What do you think it will take for Nokia to turn itself around? Leave a comment here or reply to us on Twitter at FirstPostTech.

by Anderson

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