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Financials: Lumia is growing and Microsoft doing just fine for now

This week the two biggest components of the Windows Phone ecosystem reported financial results.  Microsoft and Nokia both printed decent numbers.

I won’t spend much time on Microsoft.  It was a fairly boring quarter. The Redmond giant came in with results that were in line with analyst results.  They’ve now sold a grand total of 60 million Windows 8 licenses, but this includes licenses sold to Dell and other manufacturers. So it’s hard to pin down exactly how many boxes consumers are actually buying with the latest and greatest Windows OS.

In the land of mobile, Microsoft won’t say how many Surface tablets they’ve sold.  I can’t say I blame them.  If they revealed numbers they’d just be compared to iPad and Samsung Galaxy Tab sales. Why would Microsoft want to give people more reason to print negative headlines?

The bottom line, to WIndows Phone people, is that Microsoft is holding its own. They posted small growth in a declining PC market. They’re well positioned to hang onto the enterprise market. They’re cash rich and cash flow positive. They can afford to push like hell on Windows Phone. They have to. They need it to succeed.

Nokia results were more interesting. As those of you who follow the story closely will remember, Nokia has been losing money for a while now. They’ve been busy restructuring the business around Windows Phone (Lumia brand) and the S40-powered Asha brand.  

So the financial markets were surprised to see Nokia actually post a profitable quarter yesterday. Not only profitable, but respectable. Operating margin in the devices and services division was 7.2%, and Nokia shipped 4.4 million Lumia phones in the quarter. That’s up from 2.9 million in the prior quarter.  


Nokia's stock performance: 6 months

Not too shabby, Nokia. Not bad at all.

Nokia actually sold 6.6 million smartphones with an average selling price of 186 EUR (about $250). The vast majority of Nokia’s device volume is still outside of the smartphone market. They still sell a lot of dumb phones. Almost 80 million of the last quarter, to be specific. They sell for an average price of 31 EUR, or $42. That’s a lot of cheap phones.  

My big worry on Nokia has been the imminent decline of these dumb phones. It’s hard to compete with a $42 phone, but on the really low end, Android hardware is closing in. Even in the most emerging markets around the world, people will save to upgrade to a full smartphone operating system in order to get all of the benefits they bring.  I don’t think Nokia can compete here.  

But Nokia’s dumb phone sales have been shrinking. The more they shrink, the less future risk they represent. And Lumia sales have been increasing. Obviously Lumia phones have better margins too. That’s good for Nokia.

Microsoft acknowledges that the Windows Phone store still has holes. They’re working to fill them. Android and iOS don’t have these holes. BlackBerry 10 certainly may still have holes. So it’s a big fight between Microsoft and RIM to solidify that 3rd place spot in the smartphone platform market. Yes, RIM has that spot for now. But they earned the spot on the old BlackBerry OS, and they will have to keep it with BlackBerry 10. In the same way, Microsoft will have to displace them with Windows Phone.

As far as the stocks: If Nokia can get its Lumia volume up towards 10-12 million per quarter, I think people (including me) will stop talking about the risk of declining dumb phone sales. They’ll have created a sustainable position with Windows Phone, and they’ll be nicely profitable. The stock likely keeps rising if that happens.


MSFT stock performance: 6 months

Microsoft? I’m less excited. Even if Surface sales pick up and other vendors so a reasonable job of selling Windows 8 tablet hardware, I think Apple is going to steal away a lot of market share as the PC market sees cannibalization from tablets. It’s not so much a knock against Microsoft as it is a result of old-world (desktop OS) market shares.  Microsoft won that war, and if they don’t win the #1 spot in mobile, they lose share.  End of story.  

(Chris Umiastowski is a contributing financial writer to the Mobile Nation network. You can see the rest of his posts here at AndroidCentraliMore and CrackBerry.)

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Reader comments

Financials: Lumia is growing and Microsoft doing just fine for now

39 Comments

There is absolutely no way Nokia can ship 10-12 million phones per quarter without their dumb phones. For that to happen, Microsoft needs to implement basic features into OS, which are still missing.

Very true all windows phone are the same software and with Android constantly changing the market won't budge for us WP fans

Of course they can. You are thinking too short term. The feature phone market was supposed to be gone by now according to so many analysts. But, its not and it isn't drying up in two years. By 2015, we won't recognize WP. It will be a reinvented monster. Nokia can indeed grow enough with the Lumia line to replace their Asha line as the need to.

Different volume settings for ringtone and music, bluetooth file transfer, a proper notification center, multiple email attachments, ability to have access to files the phone doesn't know (a file explorer preferrably), ability to save apps on SD cards, and many more that I would know about if I had a Windows Phone :)
 

there isnt a local scout and bing vision is missing a lot of features for non-US even in wp8... wp7.x is still missing the bing voice search at least in italy...maybe in 4 or 5 years msft will be able to place same features on xbox/w/wp

I can't remember where I read this, but supposedly Microsoft was working with Qualcomm to produce $100, unsubsidized phones for emerging markets to allow them to compete with Android.
If this does pan out, and Nokia is on board, I could see the Asha line being updated or replaced by a WP equivalent.  

Don't underestimate Ballmer. If hes dedicated to making a product suceed he can do it. This isn't no Zune HD or Kin.

Tough things to agree with here, in my opinion. It will take a LONG time for Nokia to double or triple its Lumia sales, as you are suggesting. And if they're turning a profit at 4.4 million devices, is 10-12 million really needed? It's obviously a nice goal and all, but is it a needed one? I think they could be a good company sitting at around 6-8 million, but I would obviously love 10-12 million (or even more) to be the result. For that to happen, it will probably take 2-3 years, and it is hard to know where things will go in that period of time.
 
I'm not worried about Microsoft, though. There's not reason they should not forever hold the corporate market for PCs, so Windows will always be relevant. Having people working on Windows at work will also keep them using it at home, for the sake of familiarity (part of why MS needs Windows 8 in businesses--so peple learn it and take it home with them). Like you say that Windows Phone can't compete with super-cheap Android devices, Macs and $600+ iPads can't compete with similarly-priced, low-end PCs from people like HP and Dell, when you talk about price and performance analysis.
 
So I'll say that I hope you're right about Nokia's growth, but that will take a few years. I disagree that Microsoft is in trouble because of tablets, because I simply think that Microsoft will have established itself well in the tablet market before tablets and hybrid devices can start to truly cannibalize the desktop market. I mean, laptops never killed the desktop market in businesses, so tablets might not either, in which case Microsoft will always have a looming presence within people's lives, and that will fuel long-term sales of home devices.

Well, if you consider Google's Search Appliance a server, and Apple servers (which they have abandonded) do exist in Datacenters.  I've seen plenty of them.

No, Google search appliances are not servers. I've worked in and with some of the largest data centers around and I've never seen an apple server running anything. The heavy lifting is all Windows, UNIX, mainframe. And with Microsoft you can get answers. From TechNet to various groups windows is unparalleled in support. Apple? Good luck. Android? Doesn't exist. Microsoft will be around for a long long time, because it works and you can work with it.

Those are the numbers they need to ship to actually grow global market share, due to how quickly smartphone adoption is spreading. In other words, the market is growing faster than they are, so even though they are growing, their market share isn't.

I wouldn't let day to day fluctuations in stock prices influenece you too much, Apple actually had a much better quarter, with much higher YOY growth, than did Microsoft.

We probably read a different analysis because while they grew YoY, they missed the targets set by analysts. The net profits, while not negative, was flat YoY. And while the iPhone and iPads sales went up, sales on the Mac OS devices went down. They get more from their desktops, MBA, and MBP so that's the reason their net was flat.

@erzhip,
 
They sold 4.4M with the WP8 models ony having scattered availablity during the last month of the quarter and even worse availability for their flagship Lumia 920. Plus mindshare continues to grow, Verizon will finally be getting a flagship,  WP is growing quite well in Europe right now, Nokia will have one of the 4 keynotes at MWC next month and hopefully have some wicked stuff to show us. I think they will break the 10 million a quarter by the end of this year.

"I think Apple is going to steal away a lot of market share as the PC market sees cannibalization from tablets"
 
Actually, Apple is seeing a decline themselves, so I'm not sold on the fact Apple will take more marketshare from the PC industry.  Also, people are not taking into account that some folks are fine with what they have purchased, and don't feel they need to upgrade like their mobile devices (i.e. every 2 years.)

+1000 Never heard that argument and its very true.

I'm not sure why so-called analysts expect people to upgrade pc's like phones. You can change your internal components on pc's so of course people don't feel the need to upgrade as frequently. Phones on the other hand cannot be upgraded internally.

Apple's table sales are way up, not down - and to be honest the Mac softness may be as much due to the late arrival and limited availability of the new iMac models. Even with that the Mac outperformed the general PC market.

While the iPhone and iPad sales went up, the Mac OS devices went down. The analysts believe the iPhone and iPads cannibalized their own PCs. The thing is, Apple makes more money from their PC line than they do from the iPhone and iPads.

I'm so tired of the "tablets taking from PC's" argument. PC sales have declined because 1) we have had a long term global recession/flatness, 2) most PC's bought in the last 3 years are powerful enough to do what 90% of users need (i.e. the need for upgrading is not as high as it used to be), and 3) there is no way I, or anyone else, will lug around a 20"+ tablet to replace our large monitors. Tablets will always be too small to do real work for any great length of time. There's a reason why so many keep wanting larger and larger phones.
Tablets are great for easy, on the go media consumption, game playing, and checking in with the office or home. But PC, and laptops with 15"+ screens will generally always have a display size advantage, especially when settling into a comfortable position to do work on them. I use my TouchPad constantly, and it's a very productive device, but I always prefer sitting down in front of my large widescreen monitor, with full size keyboard and trackball, to do most of my computing, and most people still feel that way.
 

Absolutely Agree! I've always been a desktop person, shunning laptops, and even tablets. But when the Surface came along, I jumped at it.  However, when I'm at home, I still prefer to do my primary surfing on my Desktop, with its 28+30 inch dual screens!

Microsoft's q4 is more interesting. wall street assholes are waiting for bad Windows number, they are screwed. Quit the obsession with the number sold the end users, they never gave that number as always, as long as the number continues quarter after quarter, that's the same thing. I have been watching this for years, and I can see Windows 8 is huge success already. From now on, watch closely, you will see big changes during the year.

Great photo of two complete morons who don't know how to run businesses.  Elop thinks by limiting the 920's availibility is how to generate demand and sell more phones.  Yeah, that's smart... lets sell less phones so we can sell more phones.  That is the dumbest thing I ever heard.  And Balmer... well just look at how much ground Microsoft lost since Gates stepped down.  That idiot was late to the game with the tablets and late to the game with the phones.  If Gates was running the show MS would have been first with both the tablets and the phones.

Microsoft WERE the first. They've been selling tablets & smartphones continuously for 13+ years. Apple was 7 years late to the party, they just did it better, were far more popular, and catered to the public not the corporate world

Did any of you including the author actually read the financials? WP8 hasn't sold much at all. Nokia x00 series is handily outselling the x20 series(Lumia 900 vs 920). The x00 is doing very well due to heavy discounts and subsidies. Th

4 million Lumias is every Lumia device made not just the 900,920,800 etc. Apple outsold Nokia 40-1.

Nokia was able to post a profit due to the Siemens, Services, and the selling of its head quarters.

WP8 Lumias - 2.9 Million Units
WP7 Lumias - 1.5 Million Units
Symbian Devices - 2.2 Million Units (amazing for a dead OS)
So, what were you saying?

doing just fine for now ? 21 billion dollars revenue and 6.38 billion dollars net profit and they are doing just fine ?
they are doing great job
google junk 14 billion dollars revenue with 2,8 billion dollar net profit

Microsoft is doing more than just fine. It's doing a steller job as far as profits are concerned. Microsoft still has a huge perception problem in the consumer space , IMO Baller isn't quite the figurehead to help sort it out. But he's pushing in the right direction. It's a huge uphill battle. I'll give him another year maybe to show some material growth. Then we'll see. The problem with the so called analysts who downplay microsoft seemingly fail to understand that Microsoft is in a transition period. So tthe state of things are not going to change overnight. Windows 8 just came out, Ofcourse its polarizing what did people expect. It's a break away from 2 decades of legacy. Ofcourse it's going to rock the boat pretty heavily. I for one  am suprised that Microsoft is still stable after risking  its most stable cash cow.