WHAT IF NOKIA DID NOT HAD THE CHINA SYNDROME?
And can we remove the China effect? We can do that for all handsets (Nokia doesn't give the breakdown by smartphones). Lets remove China sales, and see what happened to the rest of the regions. Without China included, Nokia sold 101.8 million phones in the remaining 5 regions in 4Q. That is down to 84.6 million for 1Q, ie a drop of 17.2 million units of handsets, or 17% drop in sales. That is just over one sixth of the total customer base. If Nokia lost that same number of unit sales each following quarter, there would be no customers left in... 18 months!
No wonder Nokia HQ was desperate to not touch the China sales. The results would be hysterical without the Chinese New Year.
But wait! This China effect was for all phones. The Nokia numbers are worse for smartphones than dumbphones. And the Elop Microsoft effect happened on 11 February, so the first sales day that Nokia's new smartphone strategy was known, was 12 February. In the three months, January-to-March 2011, out of the 90 days in the period, only 48 days (53%) were under the influence of Stephen Elop's announcement. If we factor in that time, and adjust it for the 90 day period, we have witnessed an actual decline 'rate' (outside of China, after Stephen Elop's Microsoft announcement) of a
32% drop! In one quarter! So if this rapid suicide-dive rate were to continue at the same pace, Nokia's total smartphone customer base could be totally extinguished - yes, wiped out - by the middle of 4Q of this year! A suicide-kamikaze move, but where your own pilot flies into your own aircraft carrier to sink it! Good job Stephen Elop! Who was it who set the platforms on fire?
HOW DOES IT COMPARE TO FORECAST?
Remember I did
this forecast right after the Elop announcement in February? I projected each quarter how Nokia
smartphone sales would decline, and what its market share would be by the end of the year 2011 (and
which rivals would eat what parts of the Nokia voluntary loyal customer give-away bonanza). I forecasted that by the only model we had from before, Microsoft's similar announcement of ending the migration of its smartphone OS path, and what its market share would do in 4 quarters. I projected Nokia market shares, unit sales, average sales prices, and total revenues to be like this:
Quarter . . . Market Share . . . Unit Sales . . . . ASP . . . . . Total Revenues of Smartphones
1Q 2011 . . 28% . . . . . . . . . . 29 M . . . . . . . . 146 Euro . . 4.3B Euro
2Q 2011 . . 21% . . . . . . . . . . 25 M . . . . . . . . 136 Euro . . 3.3B Euro
3Q 2011 . . 16% . . . . . . . . . . 21 M . . . . . . . . 126 Euro . . 2.6B Euro
4Q 2011. . 12% . . . . . . . . . . 17 M . . . . . . . . 116 Euro . . 2.0B Euro
I said clearly that this model was the 'best case' scenario, as there was plenty of Nokia doom and gloom at the time (including my previous analysis of the decision and how it was made). But there were several competent analysts who came to the blog who said they felt I was being too harsh on Nokia, that while it would be bad, it wouldn't be quite that bad. Well, now we have the very first evaluation of those numbers. And yes, it is worse. I had expected 1Q best case to be and what it actually was:
My projection 1Q . . 28% . . . . 29 M . . . . . . . 146 Euro . . 4.3B Euro
Nokia actual 1Q . . 24% . . . . . 24 M . . . . . . . 147 Euro . . 3.6B Euro
After the Elop announcement, Nokia market share in smartphones for 1Q fell enormously
but is 14% worse than I projected. Nokia unit sales in smartphones fell dramatically
but are 17% worse than I projected, the average sales price declined severely
but is less than 1% better than I projected. The total revenues of the smartphone unit crashed,
yet are still 16% worse than I projected. And many experts said I was 'too
pessimistic' in my scenario. And my scenario expects first Microsoft phones to arrive like the US cavalry to save the pilgrims, in 4Q. And by that time, my original forecast projects Nokia smartphone market share to hit 12%. These first quarter numbers push that 'best case' scenario to single digits!
Who else told you how bad it would get immediately, and who else gave you the specific units, market shares, average sales prices and total revenues? And who else said that this being the best case scenario, the reality was likely even worse. Do please be prepared, Nokia year 2011 will be the
Annus Horribilis like we have never seen in this industry. But now, with all that, let's go back to the quarterly results, for an interesting view to this quarterly performance. Check out what Stephen Elop wrote of the results: "
Following a solid first quarter, we expect a more challenging second quarter."
WHAT?
A
what first quarter? Stephen Elop sees his Networks unit go from profitable to loss-making, and losing its world second place standing to Chinese low-cost rival Huawei. Nokia sees its dumbphones unit reverse a unit sales growth into unit sales decline, lose market share, reverse a growth in average sales price to ASP decline, see total dumbphone revenues decline, and see an increasing operating profit turn into declining operating profit. And worst of all, in its premier smartphones unit for the first quarter ever, see a loss of actual smartphone unit sales, see a crash of market share, reverse its growth of average sales price into massive decline, see a huge shrinking of total revenues produced by this key business unit, and see the growth in operating profit turn once again into declining operating profit for smartphones!
And this new CEO Stephen Elop calls a 'solid' first quarter? I wonder what he'd have called Toyota's failing brakes quarter or BP's oil spill quarter or Rolls Royce's exploding Airbus A380 engine quarter? An 'unsettled' quarter perhaps? How bad does it need to be for the CEO to admit that his ship is trouble, if except for an opportunistic China gift-season, the rest of the company lost one sixth of its existing customer base, while the industry itself grew!
Even when Motorola did its massive market share
hara-kiri suicide from the peak of the
Razr hysteria, Moto only lost 6% to 8% of its customer base per quarter. That was our world record for destroying your own customer base in mobile phone handsets, Motorola devastated 3 out of every 4 existing customers in a four year period between 2006 and 2010, as it struggled to react to the iPhone, re-invent a new Razr hit phone, and finally abandoning those, it put all its eggs in an Android strategy where it now is listed as only the 4th best-selling Android brand globally while the company was split up and many parts of it were sold.
Nokia is not doing twice as bad as Motorola in its worst quarters,
Nokia is right now doing about Four times as badly, as Motorola in its darkest hours. And this the new brave honest American-style CEO calls a 'solid' first quarter? What business school did Stephen Elop go to? This sounds like
"They will greet us as liberators" style Rumsfeld-Cheney'ian deliberate suspension of any tiniest thread of reality. When I said, that for any Nokia CEO to write the 'burning platforms'
memo, I said he'd have to be a
"delusional psycopath who willingly suspends reality." Come on? Stephen Elop called 1Q of Nokia 'solid'?
If he had said they had a 'troubled' 1Q or a 'difficult' 1Q or a 'disappointing' 1Q or even a 'patchy' 1Q then I'd be willing to say Elop is reasonably sound in his communications. I know he is not 'stupid'. Of course he knows the numbers, he knows the facts, he has smart management advising him. He is not delusional. But he IS communicating to the investors as if he was a lunatic in charge. Come on! Let's be honest here Stephen! This was a bloodbath quarter for Nokia, even with the China silver lining.
And now, all who follow Nokia, that wonderfully honest and open CEO, is saying "
Following a solid first quarter, we expect a more challenging second quarter."
The second quarter will be worse than this past disastrous first quarter. Stephen Elop himself warns us, however you rate 1Q, now 2Q will be worse. That he promises us. And I am telling you, it keeps getting worse in 3Q (and 4Q and possibly beyond) until the Microsoft smartphones are selling and even then, that launch quarter won't save Nokia, it will only start to slow the losses. If the new handsets are desirable, if the Nokia-loyal consumers like the new Microsoft look-and-feel which will appear at least unfamiliar. And assuming the first Microkia Nokisoft phones are bug-fee, and well tested and not rushed with problems like say what... the N97?
Nokia smartphones unit is in a death-spiral. It will go from making most of Nokia's profits, to loss-making by this summer. The market share will crash to single digits by year-end. And the overall loss-making of smartphones (with no significant help from NSN or the dumbphones units, both of which suffer from the smartphone unit troubles) will push all of Nokia corporation to generate a loss by the end of the year. This is an ever more obvious scenario the further we move into this year of the
Bloodbath 2, Electric Boogaloo.
Thats my review of Nokia 1Q. More Bloodbath Year 2 reviews coming soon. Remember, if you need all the stats and numbers on the handset market, I have released my
TomiAhonen Phone Book with 98 tables and charts of all market shares, feature installed bases, form factors, operating systems, average prices etc, costing only 9.99 Euros. See more at
TomiAhonen Phone Book.
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