Despite a Loss, Nokia Reports a Windows-Based Lift

Nokia said Thursday that its loss in the second quarter had more than tripled, but it posted the first tangible gains in its turbulent transition to a Windows-based smartphone business as sales rebounded in the U.S. market.

Nokia sold four million Lumia smartphones running Windows in the second quarter.
Shares of Nokia, based in Espoo, Finland, closed 12 percent higher in Helsinki after the company said it had sold four million new Lumia smartphones running Windows in the second quarter, more than analysts had expected and double their sales in the first quarter.

The loss in the three months through June was €1.4 billion, or $1.7 billion. Sales revenue from cellphones and services rose 45 percent in North America, to €128 million, the first such increase in at least a decade.

The Nokia chief executive, Stephen Elop, said the coming release of Windows Phone 8 software in October, which promises better coordination and more features for computers and smartphones running Microsoft software, would further lift sales of Lumia devices.

“I think this shows that as consumers get a Lumia in their hands, they are very happy with what they have,” Mr. Elop, a former Microsoft executive, said during an interview.

Since January, Mr. Elop has disclosed plans to cut a third of Nokia’s work force, or 21,000 jobs, providing savings to weather the transition to a Windows-centric business. Nokia has amassed €3.5 billion in combined losses since announcing its Microsoft alliance in February 2011 as demand has dried up for its old in-house Symbian-based phones.

Benefits from the cost savings were reflected in Nokia’s net cash at the end of June, which rose 8 percent to €4.2 billion even after a €742 million dividend payment.

Francisco Jeronimo, an analyst with International Data Corp. in London, said Nokia’s non-smartphone business, which makes up 60 percent of sales, had also performed strongly in the quarter, demonstrating its ability to fend off lower-cost rivals. Nokia sold 73.5 million such phones, up 2 percent from a year earlier.

The company also said that its unprofitable network equipment venture, Nokia Siemens Networks, had generated an operating profit in the quarter, turning a corner in its two-year restructuring plan.

“Nokia’s quarterly loss was less than expected, and the volumes of its basic feature phones are increasing, which is a good sign,” Mr. Jeronimo said. “The results on Lumia show that the company’s turnaround strategy, which is a long-term project, could succeed.”

The results provided a rare bit of good news for Nokia, the onetime leader of the mobile phone business, now fighting for survival in an industry dominated by Apple, Samsung and the makers of handsets running Google’s Android operating system.

Mr. Elop said rising U.S. sales were being lifted by demand for the newest models, the Lumia 900 and Lumia 610, sold by AT&T and T-Mobile U.S.A. He said the release of Windows Phone 8, and Microsoft’s plans to aggressively promote it, would provide a “halo effect” that benefited Lumia phones.

Windows Phone 8, Mr. Elop said, will include new features like mobile payment software based on near-field communication, a short-range wireless technology, and enhanced security features.

During a conference call with analysts, Mr. Elop said he did not expect sales of the four existing Lumia handset models, which run on an earlier version of Windows and cannot be fully upgraded to Windows 8, to be adversely affected. He said Nokia was prepared to cut prices on older Lumia devices if necessary to sustain demand.

Consumers do not seem concerned or confused by the software upgrade, he said. The number of U.S. consumers activating Lumia devices for the first time rose after Microsoft announced plans for its Windows Phone 8 release, Mr. Elop said. That, he said, suggests that consumer demand for Lumia phones will remain unbroken through successive upgrades.

The positive response to Lumia overshadowed continued negative financial results 18 months into Nokia’s transition to Windows, as declining sales of Symbian devices weigh on the company’s financial results.

Sales in the second quarter declined 19 percent, to €7.54 billion. The quarterly loss of €1.4 billion followed a €929 million loss in the first quarter and compared with a €368 million loss in the year-earlier period.

Pete Cunningham, an analyst at Canalys in Reading, England, said the introduction of Lumia handsets running Windows Phone 8 software could help Nokia cement its turnaround.

“Nokia has been in free fall in recent quarters, and while it is not out of the woods yet, it does seem as if it is pretty close to the bottom,” he said.

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