Spillikins №154. Nokia 800 Sales: The First Data

It's time of financial reports for Q4 2011 and the whole 2011. However, for some companies the financial year is far from over and they only release intermediate reports. This is the time when any PR efforts are shattered by solid figures.
Last week's biggest event was that Apple has entered the textbook market and did it as always flamboyantly. Look at this video:

If you find yourself impressed by this video you should also check out my thoughts on why this is so important for the industry and how this Apple maneuver is going to affect the market:

Apple and Books: Gutenberg 3.0

Contents:

1. Nokia Sales Repeat Last Year's Scenario
2. Sony Ericsson Quarter Results: In The Red Again
3. Microsoft: Paradigm Change and New Threats
4. New Laws for Chargers in California

Nokia Sales Repeat Last Year's Scenario

The more effort Nokia was putting into the PR of the 'success' of Nokia 800 and Nokia 710 of the Lumia series the harder reality was going to hit it. Many people were convinced that the latest Nokia flagship was so popular it was impossible to get. Over the last two years Nokia has been paying a lot more attention to creating an image of good sales rather than trying to achieve good sales. This game was fun and Nokia had no rivals in it as well as in the numbers of reported preorders and the release of the first Nokia WP7 phones has changed nothing.
About a year ago I wrote that Nokia C7 was a sales flop and the company had to cut down its price by 21%. Back then Nokia's PR and ad departments were also creating a big hype but Symbian^3 smartphones failed anyway and today Nokia is losing the market at unprecedented rate and Windows phone 7 cannot, as many hoped, save the company.
In early December 2011 Nokia released Nokia 800, its WP7 flagship, on the Russian market. In the beginning this phone cost 20.990 RUB, in January the price tag was lowered to 19.990 RUB but on the market the prices varied from 19.000 to 19.500 RUB. By January 20 the price was as low as 18.000 RUB – you can definitely see a pattern of 'popularity' here. So the flagship phone with the biggest ad budget devaluated by 10% this quickly. Also about a year ago it was the same story with Nokia N8 – this was the first time Nokia realized that price dumping cannot help their phones.
History tends to repeat itself but with every turn something changes. In this case the change means in even lower sales then the previous phone. Nokia 710 went on sale on December 15 for 13.490 RUB and in just a month the price went down to 10.990 RUB or less. This is an 18.5% drop in a month – the Nokia C7 scenario all over again.
Can anyone call Nokia's WP7 phones successful if prices for them are falling so quickly? I don't think so. These sales reflect the popularity of WP7 and the Nokia brand. The pre new year sales were the last straw and Nokia was finally pushed to Number two in sales on the Russian market by Samsung. If you happen to pop into the warehouse of any consumer electronics store you will piles of Nokia phones and very few phones of other brands. And the situation gets worse by the day.
I polled a number of major Russian retailers and learned that they all are going to cut down on their WP7 phones orders. It is too hard to sell these phones, there are too many returns and complaints. It is the same Symbian^3 story happening to the company's WP7 phones. How did this all happen? I suppose we should ask the management.
The biggest event of this week is going to be Nokia's Q4 2011 and yearly financial reports. As usual, there are already 'enthusiastic claims' of ''record high sales' of Nokia 800/710 on the web. The Morgan Stanley assessments speak about a million WP7 devices shipped by Nokia. This figure makes bloggers loyal to the company fill the web with panegyrics to the company since earlier analysts mentioned only half a million handsets. But I assure you that any figure below two million units is a complete and utter failure.
In Europe generally the sales situation with Nokia 800 is the same as in Russia. SFR gives a special offer for Nokia 800 in France – you can buy it locked for just €199. Argus, a British store, put a price tag of ?199 on Nokia 800 by mistake. They fixed it a few hours later and began to return the money to those who purchased it. I suppose the demand for it soared but those Nokia 800 handset were the December stock and no one wants them at the price the manufacturer asks for them.

While we wait for the financial reports I suggest looking at Interbrand's rating of brand values. In 2011 Nokia went down six positions (15% of value) from number 8 in the rating to 14. This also illustrates the company's decline that began in 2010 only now it is obvious for everyone. In 2010 Nokia lost three positions, last year it was six so I think we can expect the company to go down another nine positions in the rating in 2012. Unless, of course, the company is dead by the end of the year.
Nokia's closest rival Samsung has already reported that they have made more profit on the global market in 2011 than Nokia. The Korean company has also repeated their promise to overtake Nokia in terms of the number of handsets sold in 2012. I think they have all chances to do it and they have gone up in Interbrand's rating from number 19 to 17 (20% value growth).
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Sony Ericsson Quarter Results: In The Red Again

In fact Sony Ericsson does not exist any more, but we still get information on its final days and success of Bert Nordberg during his reign. Fourth quarter results are clear as the company lost 207 million Euros and a new series of layoffs is coming despite the fact that the brand now belongs to Sony. There were no other options left. Let's look at the numbers and think what is the legacy inherited by Sony.

	Q4 2010	Q3 2011	Q4 2011	FY 2010	FY 2011
Number of units shipped (million) | Average selling price (Euro)	11.2 | 136	9.5 | 166	9.0 | 143	43.1 | 146	34.4 | 152
Sales (Euro m.)	1,528	1,586	1,288	6,294	5,212
Gross margin (%)	30%	27%	24%	29%	28%
Operating income (Euro m.)	39	38	-227	159	-206
Operating margin (%)	3%	2%	-18%	3%	-4%
Restructuring charges (Euro m.)	-3	-	-93	-42	-93
Operating income excl. restructuring charges (Euro m.)	43	38	-134	202	-113
Operating margin excl. restructuring charges (%)	3%	2%	-10%	3%	-2%
Income before taxes (IBT) (Euro m.)	35	31	-247	147	-243
IBT excl. restructuring charges (Euro m.)	39	31	-154	189	-150
Net income (Euro m.)	8	0	-207	90	-247
*All amounts are according to Swedish GAAP

Sony Ericsson managed to ship only 9 million handsets in the last quarter of the previous year with the average price dipping to 143 Euros from 166 Euros one quarter earlier. This indicator is pretty high due to the dominance of smartphones in the portfolio of SE. On the other hand in the fourth quarter the company failed to introduce new products, which decreased the price and sales. SE is losing to its rivals, which is expressed in its financial indicators. The current management is bigger than the needs of the company, which triggers layoffs. With every coming quarter and decrease in sales the manufacturer will be getting less and less efficient. It is a vicious circle, but I hope that the transfer of all departments to Sony will rejuvenate the brand. The history is repeated again. When Ericsson joined its mobile segment with that of Sony they had an interesting and competitive model Ericsson T68, which was the first symbol of improvement, though it was a long way to go until the amalgamated company managed to reach tangible success. Similarly Sony boasts Xperia S now to compete with Apple iPhone or Galaxy S2/S3 from Samsung.
At the end of the year Sony Ericsson had cash reserves of 442 million Euros, but the debt of the company reaches 742 million Euros. Without getting into too much detail it is necessary to mention that the company has to service the debt and pay the interest. These amounts are not staggering, but it still affects the situation. Another slump in sales will lead to further deterioration.
Smartphones constitute 80% of sales, which is good, but it is not enough for us to analyze the situation. Taking into account the current sales tendencies the market share of Sony Ericsson in the fast growing smartphone segment will plummet, which means that the present strategy is not working well. I think it is vital to finalize the merger with Sony as soon as possible, hire new people and start from scratch.
Last weak the pricing information for new SE models in 2012 was leaked in the media. All handsets are Android smartphones, but this portfolio makes it impossible to retain the market share. The downfall will continue and by the end of 2012 the company will be able to sell only 6-6.5 million handsets at best.

Source esato.com

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Microsoft: Paradigm Change and New Threats

What is the main source of income for Microsoft? A generally correct answer can be given by any of our readers. Microsoft is the king of software. The main question is what kind of software brings them profit. The majority of respondents usually mention Windows OS, but according to corporate information it takes only the third place in sales generation. The crown belongs to the MS Office followed by appropriate database software. MS Windows is a key element of business strategy, but is not the main cash cow of the company.
The popularity of MS Office is understandable and even if you own a Mac you normally install MS Office there. Theoretically you can install Windows on any Mac now, but such a move is not really popular. Microsoft Business Division responsible for MS Office is doing well. Within 18 moths after the launch of Office 2010 they sold 200 million copies of the office suite, which is staggering. At the same time Windows/Windows Live experienced a 6% slump in sales in comparison with the previous reporting period. The explanation is simple - people buy fewer PCs. In this context PCs mean both desktops and laptops running on OS Windows. The paradigm has changed and we have a pronounced shift towards mobile solutions with tablets dominating the market. This is only the beginning and every sold tablet means one OS Windows copy less. There are tablets on Windows, but their share is negligible to take them seriously.
Ideally in 2011 or even in 2010 Microsoft had to come up with an answer to Android/iOS used in the majority of tablets. Now the software giant has to catch up. Until the middle of 2012 we will not see tablets on Windows 8 and only at the end of the year or at the start of 2013 energy efficient tablets on ARM will emerge. Microsoft will lose the first 6 months of 2012 as rivals will dominate the OS market. No one buys a desktop, laptop and tablet together. Consumers are happy to own two of them.
I have doubts that Microsoft will develop a proper mobile version of Windows 8 in time. So far all their mobile products proved to be unsuccessful. The market data from Microsoft also show that all rumors about the company earning royalties from the development of Android phones are ungrounded. There is no data to confirm that.
For Microsoft to survive as a serious OS player they need a competitive mobile version for tablets and phones, which does not exist now. I am not sure that Windows 8 will solve the issue. At CES2012 I tested one of the latest prototypes of a Windows 8 based tablet. My experience was far from impressive, because the battery was dead by the end of the day, while speed and convenience were clearly below those of iPad. We cannot base our assessments on a prototype, but so far Microsoft is not ready to fight and its future is not clear yet.
On the positive side I would like to mention the sales of Kinect, which reached a mark of 18 million items. The next Microsoft revolution will be connected with this XBOX360 addition. In future more new services and features will be available for the camera originally created for a game console. As any other company Microsoft has both its advantages and drawbacks, but sadly for us its mobile division cannot be proud of itself.
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New Laws for Chargers in California

Every US state has the right to issue their own legislative acts, which may seem chaotic at times, but is useful overall. For the first time on my memory California passed a law making companies ship their devices equipped with expensive chargers. According to legislators chargers lead to additional waste of electric power and cost the state 300 million dollars annually. The law comes into effect on February 1, 2013 and the rest of the time manufacturers can spend selecting “proper” chargers for their models. Interestingly, the majority of big players do it anyway and the law will target second tier Chinese companies. To my mind this law is quite useful and will help consumers save power despite the increase in price for several products in question. It is not clear how to enforce the law, but it is a step in the right direction.
P.S. Have a nice week and wait for many new reviews. Take care!