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Nokia earnings pain masks intact war chest, brewing counterattack

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Nokia reported another painful quarter today and warned of more to come. The Finnish phone giant reported sales were down 19 per cent year-on-year to €7.2bn for Q3, with an operating loss of €576m. On the positive side the war chest of net cash is unperturbed at €3.6bn, and Nokia's networks division and feature phones did well.

The cash pile is important, as it's going to need it. New Windows 8 Phone devices, which are a significant improvement on today's range and have been called Nokia's "first true Windows phones" are imminent. But Nokia won't book revenue from the new range until mid-way through Q4 - and only in selected markets. As a consequence, it's flushing out the channel inventory of its current Lumias at very low prices. Officially, shipments of Lumia phones dwindled to 2.9m, and the company reported an operating margin (non-IFRS) of -19.2 per cent (-7.4 per cent IFRS).

Sales of smartphones fell from 16.8m in the same quarter a year ago, to 6.3m. Devices revenue fell particularly in China, where the abandonment of Symbian meant sales fell off a cliff: down 78 per cent from €1.27bn to €278bn. Overall devices and services sales were down 34 per cent year on year and 11 per cent sequentially, or in constant currency 36 per cent and 13 per cent.

So, the only way is up?

The bright spot was strong sales of its Asha phones: feature phone sales grew by 3 per cent, and sales into Asia-Pacific continued to climb. Nokia can still compete in the sub-$100 market - one of the three targeted for improvement by CEO Stephen Elop in his 'Burning Platforms' memo - and the one everyone forgets about.

Much of Nokia's exceptional items came from the restructuring program, as it races to get costs in line with revenue. Nokia torched Symbian and what's left of Meego, resulting in phone R&D 21 per cent lower than a year ago. (Nokia also abandoned its Meltemi system this year, but since it hadn't ever officially announced Meltemi, it didn't feel obliged to record this death). The company recorded write-downs and charges of €654m, of which €454m was downsizing the phones division.

Microsoft continues to pump $250m into its key partner, Nokia confirmed.

You can find more gory details here - and judge whether you think Nokia's real comeback with our hands on, here.

A largely "and so?" response to Apple's iPhone 5 has encouraged Nokia. However it isn't really competing with Apple - rather it is up against the mass market of poorly differentiated Android devices, with one stand-out phone and a lot of pretty good ones. ®

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