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Nokia near billion dollar loss due to smartphone failure

Analysts blame Nokia smartphone focus

Nokia has posted its first quarterly loss in a decade. Industry analysts blame the company's lack of smartphone focus as a major reason for its failure.

Nokia reported a third-quarter loss of €559 million (£515 million; US$833 million) that it blamed on charges related to its Nokia Siemens business. Sales of €9.8 billion were down 20 percent compared to last year, the company said today.

The main reason for the loss is a €908 million impairment charge related to Nokia Siemens. It is also paying €29 million restructuring charge related to the infrastructure company, according to Nokia. Both tough competition and adverse market conditions played a part in Nokia Siemens' problems, it said.

However, Kevin Burden, practice director of mobile devices at ABI Research, blamed the company's poor smartphone focus: "Nokia's decade-old legacy in smartphones is clearly not helping it hold up against consumers' new expectations about how a smartphone should look and function."

Nokia N97 smartphone

The volume of Nokia smartphone shipments declined to 16.4 million units for the third quarter, from 16.9 million units in the previous quarter. "This is not a trend you would expect during a time when consumers are finally recognizing the value that smartphones can deliver," continued Burden, hinting at the success of smartphones from Apple and BlackBerry.

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Nokia shipped 108.5 million mobile phones in the third quarter, which is down 8 percent from the 117.8 million units it shipped during the same quarter in 2008.

It was, however, able to post a sequential increase of 5 percent, but that news is less surprising since historically the handset market increases its volume throughout the year, with each quarter building on the one before.

Although Nokia's performance in the smartphone segment is being cited as one of its chief problem areas, smartphones make up only 15 percent of the Finnish company's quarterly handset unit volume, which means it has larger problems lying elsewhere.

However, a year-over-year decline in overall handset volume in every geographic region where Nokia operates is far more disturbing than its performance in the smartphone segment alone.

Although improving its performance in that segment could make all the difference in some regions, such as its home European market where it posted a 1.1 percent decline, it wasn't going to help much in most of its other regional markets.

Nokia's total mobile phone market share held steady at 38 percent and the average price per phone at €62, compared to the second quarter.

The phone vendor has begun to break out reporting of its smartphone and mobile computer sales, which totaled €3.1 billion during the third quarter. The average smartphone sales price was €190, up from €182 during the second quarter.

But the overall number of smartphones sold decreased during the third quarter to 16.4 million, compared to 16.9 million in the previous quarter, according to Kallasvuo. Nokia could have sold more smartphones, but a lack of components, including camera modules, held it back somewhat, he said.

The increase in average sales price in the smartphone segment is most likely thanks to slightly higher volumes of the N97, according to Carolina Milanesi, research director at Gartner, who thinks that Nokia still has work to do in the high-end segment.

The N97 did very well, and sold 1.8 million units. Nokia's Symbian-based touch phones - the N97, the 5800 XpressMusic (pictured below) and the 5530 XpressMusic - sold a combined 5.7 million units, which represents a sequential unit growth of 35 percent, according to Kallasvuo.

Nokia 5800 XpressMusic

Competition in the smartphone segment is constantly accelerating, and the Nokia-backed Symbian platform has a lot of work to do. For example, the user interface needs to be improved, Kallasvuo said.

It's clear that Nokia Siemens is losing market share, but Nokia is still backing the company as it tries to turn around its fortunes, Nokia CEO Olli-Pekka Kallasvuo said during a conference call.

On the handset side the company saw a decline in units sold year-to-year, but an improvement from the immediately previous quarter. It sold 108.5 million mobile phones, down 8 percent from a year ago. However, it sold 5 million more than during the second quarter. The company has seen improved demand in many markets, it said.

"It is encouraging to see some signs of recovery in our markets. But let's be clear, uncertainty in end-consumer demand remains," said Kallasvuo.

"I expect Q4 to be the best quarter of the year in terms of net sales, volumes and margins," said Kallasvuo.

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