The CEO of Nokia, Stephen Elop, is the first to point out that the company is in a state of transition. New products, new markets and about a $1 billion in cost cutting initiatives are on the horizon in 2012 and into next year. As Nokia (NYSE: NOK) investors are very much aware the stock has had a wild ride the past 12 months. And after the recent earnings announcement there doesn't seem to be much to like about NOK; until you dig a bit deeper that is.
As for the numbers there's no sense sugar-coating it, there wasn't a lot to like. A huge loss on the quarter of over Euro 1 billion hurt and the reaction of investors was as expected. However there are a couple of points worth noting that may help to take some of the sting out of 2011 in general and Q4 in particular. The increase in revenues in the 4th quarter was the third consecutive quarterly improvement, though still less than 2010.
But most noteworthy is the negative income numbers were, in large part, because of Euro 1.3 billion in one-time expenses. Most of the charges were related to significant R&D and other costs associated with the roll-out of the Lumia smartphones and subsidiary tax issues.
Plans For The Lumia
Within 6 months of signing a partnership agreement with Microsoft, NOK introduced what is widely considered to be very strong smartphone to consumers. There were certainly no product delivery issues there. Shortly after the Lumia smartphone was introduced an agreement with AT&T was announced to offer the Lumia as their lead LTE (Long Term Evolution) device. This, along with an existing agreement with T-Mobile and Microsoft's business distribution network positions the company well for what could be a huge boost.
Mr. Elop also announced plans to introduce Lumia to the China and Latin America markets in the first half of 2012. If the speed in which the company was able to negotiate the deal with Microsoft for their 7.5 OS and get it to market is any indication, it probably wouldn't be wise to bet against it.
Nokia also confirmed 1 million Lumia smartphones were earmarked for the North American market, as a start. Those aren't iPhone numbers by any stretch, but they are solid considering how early on in the lifecycle they are.
With the business distribution system of Microsoft and the added retail outlets of T-Mobile and AT&T, Nokia certainly seems to have the pieces in place to carve out a niche in an exploding marketplace. For investors, particularly those willing to assume some risk, the Lumia and its potential impact on Nokia earnings presents a significant opportunity. And management knows just as shareholders do, the success of the company is riding on Lumia so they better get it right.