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Market Update

Nokia Avoiding Death Spiral

Despite the positive steps taken this quarter, Nokia faces a long and challenging transition that will test investor patience, says Morningstar's Michael Holt.

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 Nokia (NOK) delivered better-than-expected growth in Lumia smartphone units and successfully preserved cash, signaling that the company is avoiding a death spiral. Nonetheless, weak operating results serve as a reminder that the transition to Nokia's new smartphones will be a slow and expensive journey that will test investor patience. We remain convinced that Nokia will survive the transition--something we cannot say about rival  Research in Motion (RIMM)--but Nokia's position as one of many Windows phone manufacturers will leave the firm in a fundamentally weaker position than it has enjoyed for much of the last decade.

Nokia reported second-quarter revenue of EUR 7.5 billion, down 19% year over year as shipments of smartphones based on Nokia's legacy Symbian platform collapsed to 6 million units from 17 million units from the second quarter of 2011. The Symbian platform is dead, however, so shipments of Nokia's Lumia products are much more important for the future prospects of the firm. This quarter, Nokia delivered Lumia sales of 4 million units, doubling the first-quarter total. The success with Lumia phones was driven by strong traction in China and Latin America.

Michael Holt does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.