Nokia sales take a big hit as buyers pass on its smartphones

The company's net loss balloons from €68 million to €969 million

Nokia continues to struggle as its third-quarter smartphone unit sales dropped by 63 percent compared to last year, while some warn that expectations for the arrival of its first phones based on Windows Phone 8 should not be too high.

The company reported third-quarter sales of €7.2 billion ($9.4 billion), down 19 percent year-on-year, making a net loss of €969 million, compared to a net loss of €68 million a year earlier.

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Nokia stands and falls with the number of phones it sells and how much it can charge for them, and the third quarter was a difficult one, the company said.

The company sold a total of 82.9 million mobile phones during the third quarter, of which 6.3 million were smartphones (including 2.9 million Lumia devices). That compares to 106.6 million phones, including 16.8 million smartphones, during the same period last year. The number of smartphones sold in the recent quarter is also far fewer than the 10.2 million sold during the second quarter this year.

The numbers highlight how important the upcoming Lumia 820 and Lumia 920, which are based on Windows Phone 8, are for the future of the company. They will go on sale in November from selected operators in selected markets, Nokia CEO Stephen Elop said during a conference call following the release of the results.

"The 820 and the 920 launch is absolutely critical. But high expectations should be kept in check, because these are two products that are launching halfway through Q4 into an extremely competitive market and they are expensive products," said Geoff Blaber, who leads mobile device research at CCS Insight.

The introduction of more low-end and low-cost Windows Phones is what will drive volumes for Nokia, according to Blaber. That fact is apparent to Nokia as well. It will expand the Lumia range to lower price points next year, according to Elop.

The Lumia 820 and Lumia 920 were announced on Sept. 5.

When asked about customer interest for the two new smartphones, Elop said it is hard to judge.

"The signs are positive, but we have to execute in stores," said Elop.

Much of the battle with Apple and the Android camp will be won and lost in stores where Nokia so far has had trouble breaking through. But, the launch of the Lumia 820 and Lumia 920 is backed up by more trained sales people than when Nokia's Windows Phone 7 devices went on sale, and the total marketing budget will also be larger, said Elop.

The company's Windows Phone push still has the backing of operators. There is a growing concern about the concentration of power in the smartphone market, especially in the U.S., according to Elop, which he hopes will cause operators to double-down on Windows Phone.

Nokia's PureView camera technology, wireless charging and location-based services will help the Lumia 820 and Lumia 920 stand out from competing Windows Phone 8-based smartphones, according to Elop.

"But our focus is not on that at all. It's about competing with Android and competing with Apple. That is the principle competition," said Elop.

However, not everything was doom and gloom during the third quarter: Excluding smartphones, unit sales increased by 4 percent thanks to the arrival of new Asha phones with touch screens.

"The Asha family is doing a good job competing with lower-end Android products. It underlines the fact that the mobile phone business is the engine that supports the smartphone transition," said Blaber.

The Asha phones and the underlying Series40 OS have been built with developing markets in mind from the ground up, including long battery lives and integrated data compression.

"That is something inherent in how the products have been designed, as opposed trying to take older versions of Android and cram them on cheaper hardware platforms," said Elop.

Also, the Nokia Siemens Networks equipment business increased its net sales by 3 percent year-on-year.

Nokia expects the fourth quarter to again be a challenging quarter with a lower-than-normal benefit from the holiday shopping season, primarily due to the transition to Windows Phone 8 and its ramp-up plan for new devices, it said.

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Copyright © 2012 IDG Communications, Inc.

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