Nokia posts a bad quarter but a good year for Windows Phone

Nokia logoNokia has delivered its last ever set of financial results from its Devices & Services division. 2013 was an encouraging year as a whole, with 30 million Lumia devices sold compared to 13.3 million in 2012, but the fourth quarter had some troubling news, with 8.2 million Lumia handsets sold compared to 8.8 million in the third quarter. In the fourth quarter of 2012, the company sold 4.4 million Lumias.

The Devices & Services division as a whole (that is, including both smart- and dumbphone sales) fared poorly. Handset revenue was down 29 percent year on year to €2.633 billion. The Finnish company attributed the drop simply to "intense competition" in both the smartphone and mobile phone markets.

With Nokia far and away the biggest Windows Phone vendor, Nokia's performance substantially represents Windows Phone's performance. With Devices & Services imminently becoming a part of Microsoft, Nokia's performance also represents what will soon be a small but important part of Microsoft's performance. But what it means for the future is less obvious.

Microsoft has said that it needs to sell around 50 million Windows Phones a year in order to break even on the phone business. While that number once seemed almost out of reach, it now looks more or less plausible. If 2013's growth rate can be continued, Microsoft will even hit that 50 million number this year.

On the other hand, the drop in sales in the fourth quarter is a problem. The holiday season should be a strong selling period for smartphones, and while the year-on-year improvement is significant, the failure to sell more Lumia phones than in the third quarter is a surprise.

The company released a few new devices in the quarter, notably the six-inch Lumia 1520 and the Lumia 2520 tablet, but with much of its growth coming at the low end (the Lumia 520, available for as little as $69 off-contract, is believed to make up about 25 percent of Windows Phone sales), the importance of these expensive, high-end devices is unclear—in practice, they're not in the right price range for many Windows Phone buyers.

Add in restrictions to their availability (the 1520, for example, is exclusive to AT&T, and the important keyboard peripheral for the 2520 tablet was unavailable at launch) and the ability of these high-end devices to move the needle is limited further still.

This isn't the first time that there's been a quarter-on-quarter decline in Lumia sales—between the second and third quarter of 2012 there was also a drop—so the results may be more of a hiccup than a reversal of fortunes.

Source: Ars Technica

Tags: Microsoft, Nokia, report, Windows Phone 7

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