Nokia's Cost-Cutting Looks Good Only on Paper
If management has been unable to capitalize on the collective weaknesses of Apple
Nokia's first-quarter earnings were disappointing.
Companies don't reach the depths Nokia has reached without having grossly mismanaged the business. By the same token, I'm willing to give management credit for at least improving Nokia's financial position. Unfortunately, profitability is also a side effect of how well your core product is received in the marketplace.
In the case of Nokia, the fact that revenue declined 20% this quarter suggests consumers remain unimpressed. While that's not entirely a surprise the fact that revenue declined almost 30% sequentially certainly was shocking, especially since the Lumia 920 was seen as a significant catalyst. Consequently, Nokia's device business continues to suffer, losing 32% this quarter.
The 5% drop in Nokia Siemens Network, or NSN, the joint venture with Siemens
However, profitability was okay. Management's cost-cutting efforts did well, offsetting Nokia's poor sales. The fact that adjusted gross margin improved by almost four points deserves some applause. It's not Apple's level of profitability, but it is progress -- both NSN and the devices businesses improved over last year. Accordingly, Nokia was able to reverse last year's loss in operating income into a modest profit.
While profitability is something on which investors can hang their hat, the fact is, cutting costs only looks good on paper. Everything else in this report was a disaster, led by a 25% decline in overall unit sales, which also plummeted 28% sequentially. Fittingly, Nokia's Lumia platform was the lone bright spot in this quarter, advancing by almost 30% sequentially.