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What Should Nokia Look For In New CEO?

Posted on Wednesday, Aug 4th 2010

According to IDC’s latest report, Nokia’s (NYSE:NOK) mobile phone market share stands at 35%, down from 37.2% last year. Nokia holds 39% of the smartphone market, but its strong markets are Europe and emerging markets such as India rather than the United States, which is the pulse of the smartphone market. Most of the phones that Nokia sells are low-priced models, which has taken a toll on the company’s profit margins. In its recent quarterly results, it reported a 31% decline in earnings. Let’s take a closer look.

Nokia reported second quarter revenue of €10 billion ($13.2 billion), up just 1%. Operating profit was down 31% y-o-y and 40% q-o-q to €295 million ($390 million). The company ended the quarter with liquidity of €9.5 billion ($12.5 billion). Its Nokia Siemens Networks recently entered an agreement to acquire the majority of Motorola’s networks business. Q1 analysis is available here.

Mobile device unit shipments were up 8% to 111.1 million and convergence device shipments were up 42% to 24 million. However, converged mobile device ASP declined to €143 from €155 last quarter. Nokia is hopeful about its new Symbian 3 OS, which is expected to compete with the iPhone 4. Nokia expects to start shipping the N8, its first device on the OS, at the end of the third quarter.

Devices & Services net sales increased 3% to €6.8 billion, compared with €6.6 billion in the second quarter 2009. Devices & Services gross margin was 30.2%, down from 34.0% in Q2 2009 and 32.4% in Q1 2010. Shipments in North America continued to decline, by 19% y-o-y and 4% q-o-q, to 2.6 million. The rest of the company’s markets showed double-digit growth except Asia-Pacific, which grew 2%, and Greater China, which grew 4%. Nokia reported that it is facing increasing competition from local Chinese vendors in these markets.

For the third quarter, Nokia expects its Mobile Devices sales to be €6.7 billion to €7.2 billion. It expects industry mobile device volumes to be up 10% in 2010 but expects its share to decline slightly from 2009. The stock was on a decline following the first quarter results and a lowered profit outlook in June owing to increasing competition. It is trading around $9.68 with a market cap of about $36.25 billion. It hit a 52-week low of $8 on June 29.

Chart forNokia Corporation (NOK)

Joann S. Lublin and Niraj Sheth of WSJ.com report that Nokia is looking for a new CEO and has interviewed at least two U.S. candidates. The company has refused to comment on the speculation. Olli-Pekka Kallasvuo has been CEO since 2006, the year before the iPhone hit the smartphone market. Nokia has been slow in responding to the iPhone OS. It has launched some great devices, but what it needs is a new OS that lives up to the competition in the smartphone market. The new Symbian is its ray of hope, and a new CEO needs to steer the company in a new and more innovative direction. Nokia missed its opportunity to acquire Palm, which would have provided it with not just a good OS but also a strong presence in the U.S. market. Most important, it could have injected Silicon Valley DNA with Palm. Now, achieving that same feat will need to happen by appointing a CEO who can change the culture of the company to compete with Apple – a tall order.

Ulf Moritzen from Hamburg-based Aramea Asset Management poses the question, “The Apple brand promises fun, the BlackBerry brand stands for serious work, but what does Nokia stand for?” Nokia has been busy churning out volumes of low-priced models and has lost its brand value to some extent. Nokia’s new CEO will need to answer this question.

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