Nokia waves goodbye to device biz as phone sales continue to spiral

Nokia's fourth quarter earnings report for its fiscal 2013 shows a company that's striving to reinvent itself – as it prepares to complete the sale of its struggling mobile phone business to Microsoft.

The Finnish firm is already reporting its Devices & Services business unit as "discontinued operations," even though the deal with Redmond has yet to pass all of the necessary regulatory hurdles.

Doubtless interim CEO Risto Siilasmaa can't wait to unload that albatross, however, given its poor performance in the quarter and throughout the year.

Net sales for Nokia's phone business in the fourth quarter were €2.63bn ($3.6bn), a decline of 29 per cent from the same period a year ago and a 5 per cent dip from Q3 alone.

Worse, this was no mere bad patch. After four consecutive gruesome quarters, net phone sales for the full year were likewise down 29 per cent, to €10.74bn ($14.71bn).

That's less than half of the €23.94bn ($32.79bn) that the Devices & Services group brought in during fiscal 2011, the first full fiscal year that former Microsoft man Stephen Elop held the CEO reins and the year he declared Windows Phone the exclusive OS for Nokia smartphones.

Nokia's fourth quarter earnings report [PDF] attributes the year-on-year decline to reduced sales of feature phones. But the quarter-to-quarter decline is down to lower smartphone sales, it says – a worrying result, considering that Q4 included the holiday shopping season.

Needless to say, those dwindling sales didn't do much for the group's bottom line. The former Devices & Services division reported an operating loss of €198m ($271.16m) for the quarter, compared to an operating profit of €97m ($132.69m) for the year-ago period. But it lost €590m ($808m) in fiscal 2013, which actually looks almost positive compared to the €1.48bn ($2.03bn) operating loss it posted in 2012.

But that's all in the past for the new Nokia. Going forward, the Finns will focus on the company's three continuing business units: Nokia Solutions and Networks (NSN for short, but don't call it Nokia Siemens Networks), the Here mapping and location unit, and Advanced Technologies, which does R&D in areas such as connectivity, sensors, materials, web, and cloud technologies.

Taken all together, net sales for Nokia's continuing operations in the quarter were down 21 per cent from Q4 of 2012, to €3.48bn ($4.77bn). Total net sales for fiscal 2013 were €12.71bn ($17.41bn), a 17 per cent decline from fiscal 2012.

Not surprisingly, net sales for all three of the company's remaining business units similarly declined in Q4 as compared to the year-ago period. NSN's sales were down 22 per cent to €3.11bn, Here's drooped 9 per cent to €254m, and Advanced Technology's were down 20 per cent to €121m.

More encouragingly, however, these three businesses together made money in 2013, to the tune of €519m in operating profits. That's compared to the operating loss of €821 Nokia posted for 2012 (and remember, that doesn't include what it lost on its phones business that year). But the Finnish firm's operating profits declined 17 per cent in the fourth quarter as compared to the previous year's quarter, to €274m.

The Here division posted a quarterly operating profit of €18m, having lost €56m in last year's quarter. But NSN's profits were down 4 per cent for the quarter to €243, and Advanced Technologies took a 35 per cent hit to its earnings, posting operating profits of €65m.

So what are we to make of the new Nokia? To hear Siilasmaa tell it, "The fourth quarter of 2013 was a watershed moment in Nokia's history," and he added that he was pleased with company's progress with its new strategy so far.

Going forward, Siilasmaa said, Nokia expects NSN to deliver solid business performance in 2014. The Here group is looking at opportunities in the automotive market and elsewhere, and the company plans to continue to invest in it. And in addition to developing new research projects, the Advanced Technologies group plans to bring in revenue from strategic licensing of Nokia's patent portfolio. It will be interesting to see how all three groups fare in the coming year.

But very likely even more eyes will be on Microsoft as it completes its acquisition of Nokia's former mobile device business. By no rational metric has Windows Phone been a boon to this group so far. With sales of Nokia's current phones continuing to dwindle, the question is whether Redmond has really bought a viable onramp into the smartphone market or just a last-ditch effort to save face. ®

Bootnote

Curiously, Nokia is teasing a press conference right at the start of industry shindig Mobile World Congress in Barcelona next month – just what may be revealed on February 24 we'll try to find out.