Nokia X6 smartphone: chief executive Stephen Elop calls the Microsoft deal a 'win-win' partnership.
Nokia, the world's biggest standalone mobile-phone company, has finally signed a deal with Microsoft worth billions of dollars which it hopes will help to reverse its falling share of the fast-growing and lucrative smartphone market.
The announcement of its plan to shift over to the software company's Windows Phone platform for its top-end smartphones came as the Finnish company set out quarterly financial results which showed continuing pressure on both its smartphone and standard mobile-phone products. Profits in the mobile division were down 17% year-on-year to €690m (£607) on revenues up 6% to €7.1bn, and overall profit down 10% to €439m on total revenues of €10.4bn, up 9%.
Although the figures were better than expected, they still contrasted poorly with Apple's spectacular results on Wednesday night, which showed its total phone revenues were $12.3bn, making the iPhone manufacturer the world's largest phone maker in sheer revenue terms.
Nokia still sells the most handsets – 108.5m in the quarter – but even that number was level with a year ago, indicating that the company is having trouble expanding its business quickly in markets such as China, India and Latin America, where it has identified the biggest potential for growth.
Apple has also creamed off the most valuable smartphone users, with average selling prices on its handsets of $660 (£400) in the latest quarter compared with €147 (£130) for Nokia's smartphones. Average prices for its phones overall have continued to drop over the past four years even while its phone volumes have remained largely static.
Nokia plans to abandon the Symbian platform currently used on its smartphones by the middle of next year and adopt Microsoft's Windows Phone because chief executive Stephen Elop – a former Microsoft executive – believes that it offers the best hope of building a sustainable platform in the fast-growing market. He called the deal "a win-win partnership" because of the complementary nature of the companies' assets.
The two companies announced the outline for the deal in London in February, after Elop had courted both Google and Microsoft, choosing between the Android mobile operating system – now the world's most-used on smartphones – and Windows Phone, which was only introduced in October 2010 and has had a lukewarm reception from customers.
Nokia shares rose 3% on news of the deal and the results, which were less bad than analysts had feared. But Elop's guidance for the forthcoming quarter indicated that the company has been hit by supply chain problems caused by the earthquake and tsunami in Japan. "We expect a more challenging second quarter," he said, forecasting "greater impact" from the earthquake's effects than in the just-ended quarter.
Elop is expected to cut a swath through Nokia's staff following the Microsoft deal, which will remove the need for a lot of in-house software development. He said the company expects to save about €1bn by 2013 through reduced headcount. The move has been unpopular within Finland, where Nokia has about 130,000 employees.
Richard Windsor, global technology specialist at Nomura, said: "It's a bit of a no-score draw really. You've got a solid set of numbers, but guidance is bad. But it's not the cataclysm that had been feared. We were worried they might miss second-quarter revenue by 10-15% because we'd heard numbers out of Asia were bad."
Geoff Blaber, analyst at CCS Insight, said: "Performance was largely consistent with expectations and there will be a sigh of relief that there appeared to be no considerable downturn at the low-end to compound Nokia's difficulties in the high-tier. Finalisation of the agreement with Microsoft means Nokia can now focus on execution."
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