Nokia To Benefit From Samsung’s Setback?

According to Gartner, during the first quarter of 2012, worldwide sales of mobile phones to end users fell 2% over the year to 419.1 million units. The decline was attributed to slow demand in the Asia-Pacific region. Nokia lost its market leadership position, which it had held since 1998, and paved the way for Samsung to become the world’s leading mobile handset vendor. During the quarter, Samsung reported sales of 86.6 million mobile phone units, up 26% over the year. Samsung now boasts ownership of 21% of the market, compared with 16% a year ago. Nokia saw sales drop 23% over the year to 83.2 million units. The company’s market share fell from 25% a year ago to 20% during the quarter.

Smartphones recorded the biggest growth, with sales increasing 45% over the year to 144.4 million. Nokia’s market share within the smartphone segment slipped, with combined Apple and Samsung accounting for 49% compared with 29% a year ago. Nokia’s market share fell to 9.2% in the quarter.

Nokia’s Financials
Nokia’s (NYSE: NOK) Q2 revenues fell 19% over the year to €7.54 billion (~$9.43 billion) and were short of the market’s estimated €7.87 billion (~$9.85 billion). However, the net loss per share of €0.08 (~$0.10) was better than market estimates of a loss of €0.09 (~$0.11) for the quarter.

By segment, revenues from the Devices and Services segment fell 26% over the year to $5.17 billion. Within the segment, revenues from smart devices fell 24% over the year to $1.98 billion. Mobile phone revenues fell 11% to $2.94 billion. Revenues from the Siemens network segment were down 8% over the year to $4.30 billion, and location and commerce segment revenues grew 4% over the year to $364 million.

High Hopes Riding on Lumia and Windows Phones
Nokia remained focused on sales of Lumia and Windows phones. Last quarter, Lumia sales doubled sequentially to more than four million units. Growth was attributed to increased availability of the Lumia 900 and the Lumia 610. Nokia is continuing to upgrade the offering and are working on updates, including WiFi tethering and media content streaming.

Earlier this quarter, the company partnered with Zynga to launch Zynga’s Poker and Draw Something on Lumia phones. These games will be free to download from the Nokia Store. Since the announcement, Nokia has already seen more than five million downloads of the games. It recently extended the agreement to its Asha Touch phone series, which will help an additional 100 million customers gain access to these free Zynga apps.

It is also partnering with Verizon to sell Lumia phones in the U.S. If the deal goes through, Nokia Lumia phones will be available on three of the top four wireless carriers in the U.S.

As part of its Windows strategy, Nokia is working with Microsoft on the release of Windows Phone 8, which is expected to hit the market in early September. For now, the phones are code-named Phi and Arrow. Phi will cater to the high-end market segment and the Arrow will be a mid-tier market phone. The two will be available on the AT&T network. Following the launch of Windows 8 phones, Lumia phone devices will also be upgraded with features, including a new start screen, improved camera experience and several updates to Nokia Drive, Nokia Transport, and Nokia Music.

The stock is trading at $3.03 with a market capitalization of $11.35 billion. It touched a 52-week low of $1.63 last month.

Gartner’s report estimates that in the first quarter this year, in smartphone sales, Microsoft phones had a mere 1.9% of the market share, while Android and iOS phones together accounted for 79% of the market. Nokia is relying heavily on the Windows Phone 8 to take it out of its current market position.

Nokia may also benefit from the recent patent lawsuit victory for Apple over Samsung. Last week, in a patent infringement case, the courts asked Samsung to pay a fine of $1 billion to Apple and placed a ban against sales of certain Samsung smartphones and tablets. The courts ruled that Samsung’s Android-based phones were using Apple’s patented technology. The verdict is not only expected to hurt sales of Samsung’s products, but also make Android devices costlier for all manufacturers. Analysts believe that the move is not only detrimental to the Android-based smartphone industry, it also “levels the playing field between Android and [the] Windows phone.” Both Nokia and Microsoft will be glad of the ruling as they stand a good chance to regain some of their lost stature in the mobile market.