Nokia reports £429m loss as smartphone revenues drop 32% in first half of 2011

Nokia has reported operating losses of €487m (£429m) in the first half of 2011, fuelled by a decline in smartphone sales.

In its second quarter 2011 results, Nokia's net sales dropped 7% year-on-year. Operating profit fell 41% year-on-year while device sales fell 20% with smartphone sales falling 32% compared with the second quarter of 2010. Device operating profits declined 43%.

Stephen Elop, chief executive at Nokia, admitted the results were disappointing, but remained hopeful the company's overall transition will enable Nokia to successfully compete in an increasingly crowded marketplace.

Stephen Elop said the company will now accelerate plans to make operating expense reductions by 2013.

"The challenges we are facing during our strategic transformation manifested in a greater than expected way in Q2 2011," said Elop.

Elop added: "During this time of transition, we expect competitive pressures to continue. However, we have a clear strategy to address the concerns about our product competitiveness. In Q2, both our smart devices and mobile phones business units moved forward on their plans."

Nokia is expected to launch new Symbian and MeeGo products in the third quarter of 2011, followed by Microsoft Windows Phone devices by the end of the year.

Recent Gartner figures showed Nokia's worldwide market share of mobile devices has dropped to the lowest level since 1997.

Carolina Milanesi, research vice-president at Gartner, expects Nokia's second quarter results to be the company's worst. However, she doesn't expect the company to begin its recovery until 2012.

"It's going to be 2012 before we see any sign of improvement, although Nokia should start to stabilise and make minor improvements," Carolina Milanesi said.

Milanesi added that Nokia needs Microsoft's Windows Phone portfolio and new Symbian and MeeGo products to prevent a freefall.

"It's not the end of Nokia, but it's the end of Nokia as we know it. They're probably not going to dominate 50% of the market again," she concluded.

The company warned in June 2011 that sales of its mobile phones would substantially drop in the second quarter of 2011 due to its current integration with Microsoft. Nokia said it was struggling after increased competition in the market, a shift towards devices with lower selling prices and "pricing tactics by Nokia and certain competitors".

Nokia formed a partnership with Microsoft in February 2011. Previously, Nokia outlined the risks of partnering with Microsoft, including a substantial reduction to staff and loss of market share.

In April 2011, the company confirmed plans to slash 700 jobs in the UK as part of a 7,000 worldwide job shedding exercise.