By Sven Grundberg
STOCKHOLM-- Microsoft Corp.'s foray into the competitive smartphone-making business was dealt a setback in the
final months of 2013 as Nokia Corp. said sales of its Lumia Windows phone line suffered a rare decline in the fourth
The trend is a troubling sign for Microsoft, which is in the process of closing the $7 billion purchase of Nokia's
handset business. When the pact was announced in September, executives at both companies pointed to a string of
quarterly smartphone sales increases as a key reason behind the U.S. software giant's bold bet.
Nokia launched a range of new devices ahead of the holiday season in an attempt to stoke momentum.
Revenue from handsets, however, declined 29% during the fourth quarter compared with the same period in 2012, and
fell 4.5% from the prior quarter. Nokia sold 8.2 million Lumias in the October-through-December period, short of the 8.8
million mark it reached in the previous three months.
Nokia Chief Financial Officer Timo Ihamuotila said Thursday the company sold 30 million Lumia Windows phones over
the entire year, a substantial increase over the 13.3 million phones it sold in 2012. But the number is far short of the
50 million smartphone sales target that Microsoft has set to reach break-even on the Nokia deal.
By purchasing Nokia's handset business, Microsoft is seeking to improve its lagging position in the mobile
industry. Although it has software for mobile phones, it is trying to play catch-up with Google Inc. and Apple Inc., and
having its own device-making operation is designed to spark faster innovation, more cohesive development and unified
Sales of Nokia's basic mobile phones, once the Finnish company's bread and butter, remained roughly flat in the
fourth quarter compared with the third, Nokia said, thus performing better than the smartphone operations. This
business, however, has come under increasing pressure and remains one of the issues Microsoft must address in the near
future, as consumers in developing markets increasingly choose more advanced Google-powered Android smartphones over
cellphones with lesser functionality.
Nokia said the decline in device sales came amid "strong momentum of competing smartphone platforms," and a
difficult transition from its now-discarded line of phones running its Symbian operating system, which was abandoned in
favor of Windows phones under former Chief Executive Stephen Elop.
For Mr. Elop, currently heading the devices unit for Nokia until the sale is complete, the Lumia performance has
been the ultimate measure of his tenure atop the Finnish company. He joined in 2010, and teamed up with Microsoft in
2011 to create a new Nokia smartphone lineup that ran exclusively on Windows mobile software.
The move was designed to help the once-dominant Nokia handsets better compete with phones running Android,
including those from Samsung Electronics Inc., and to better combat Apple's iPhone. Together, Android and Apple's iOS
hold well over 90% market share in the smartphone industry, significantly higher than the 46% market share the two
platforms had at the end of 2010, before Microsoft and Nokia decided to team up.
Nokia has launched more than a dozen Lumia Windows phones since it teamed with Microsoft, and in October it took
the wraps off its first tablet device and a pair of supersize smartphones, roughly the same size as the Samsung Galaxy
Mr. Elop played a major role in the launch of those new products, but has kept a low profile since. He has been
considered a potential replacement for Microsoft Chief Executive Steve Ballmer, who is set to retire this year.
Once Nokia's phone business is sold, the Finnish company will name a new chief executive and likely reinstate a
dividend to shareholders. The company on Thursday said it still expects to complete the transfer of its device business
to Microsoft in the first quarter, but it is waiting on approval for the deal "in some Asian countries," according to
Nokia's remaining business-- largely composed of a wireless-networks business--posted a profit in the final quarter
of the year, but headwinds are evident. Revenue at the Nokia Solutions & Networks unit, which accounts for 90% of the
new Nokia sales, was EUR3.1 billion in the fourth quarter, a 22% decline from the same period a year ago.
Nokia also will continue running a HERE mapping business and Advanced Technologies division to manage its patent
portfolio, both of which were profitable during the quarter. Nokia reported a net profit of EUR183 million in the
quarter, not including the discontinued devices business, slightly lower than the same period a year ago.
Operating margins in the NSN business, reported on a non-IFRS basis, fell from where they were a year ago, coming
in at 11.2 % compared with 14.4% a year ago.
Much of NSN's revenue decline could be attributed to restructuring efforts as NSN has sold off parts of its
business, such as optical networks, to focus solely on mobile-broadband equipment. Lower deployment of wireless
infrastructure and unfavorable currency also contributed to the decline.
NSN said margins will decline in the first quarter, but profitability should improve toward the end of 2014.
The unit won a batch of high-profile network deals in recent months, including an agreement with U.S. operator
Sprint. It also landed a large deal with China Mobile Ltd., one of the world's largest mobile operators, to implement a
significant share of its fourth-generation network in China.
Write to Sven Grundberg at firstname.lastname@example.org
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