Nokia’s Bad News

So perhaps MoD spoke too soon when in a recent article we indicated that Nokia was two years away from probably making the decision to flush their OS efforts and buy something off the shelf.

First, there are almost daily reports that Nokia is looking to replace current CEO Olli-Pekka Kallasvuo. A dramatic move by a new CEO could be to kill off what appears to be an overly complicated OS structure, and plunge into the waters with Android or maybe join forces with Microsoft on Windows Phone 7 (MS has signed an agreement to make Office products for Nokia).

Second, why is OPK as he is known on the outs. Nokia’s Q2 numbers.

Let’s compare Nokia to Apple since probably some Nokia board members are doing the same thing.

It’s 3 years since the iPhone started going on sale, and where is Apple’s cellphone business in comparison to the world leader in cellphone? ( Any Nokia’s numbers were pulled from this report. Apple numbers from here . Euro to dollar conversion rate of 1.29 was utilized in all currency conversions)

On one level, Nokia is crushing Apple on total volume of phones and in smartphone sales, but the Average selling price numbers tell a very different story. Almost half of Nokia’s revenue comes from cheap traditional handsets and it took selling 87 million to generate that revenue. On the smartphone side, Apple is already outperforming Nokia with almost a billion dollars in revenue gap. Again, the average selling price of smartphones is killing Nokia. It takes 3 “smartphone” devices to equal one iPhone sale. Now, Nokia sells expensive smartphones with the N8 going for almost $500 in the UK for example. However, clearly N8’s do not make up the majority of that 24 million number. It would be interesting to see how many cell phones in the dollar range class of the iPhone that Nokia is really selling.

You cannot tell how much of a contribution the iPhone is making to Apple’s overall net profit, Apple does not break down net profit by product line, but it’s easy to project that the iPhone represents 1/3 of that $3.25 billion. From that assumption, Apple’s phone business is outperforming Nokia’s whole company by a factor of 4 to 1. Nokia does report profit by product line  Nokia’s cell phone business created $695 million in net profit, Apple’s iPhone business is outperforming Nokia’s by a ratio of about 2 to 1.

Compare the current numbers to prior to the release of the iPhone back in 2007. Nokia’s phone division reported nearly $1.5 billion profit (using current conversion rate), with an average device price of nearly $117. So in the 3 years since the iPhone has launched, Nokia’s average price of device has dropped in half, and their operating profit from cellphones has also been halved.

With all this data at hand along with the fact that the cell phone division is the best performing division in the company if I was the next CEO of Nokia, I’d be thinking about a “bet the company”/drastic measure to rebuild the smartphone division.

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