China crisis for Nokia as sales plunge causes €900m loss

62 per cent drop in China sales keeps Nokia embroiled in crisis

Nokia has posted another near-€1bn loss following a collapse in sales in its key market of Greater China in a third quarter report, published today.

The mobile phone handset maker's results had been eagerly awaited as a key indicator of whether the company will be able to pull itself out of the tailspin it had been thrown into after the publication of CEO Stephen Elop's "burning platform" memo in February 2011, and subsequent adoption of Windows Phone as its sole smartphone platform.

Total sales fell by 19.4 per cent to €7.24bn (£5.88bn) in the third quarter, compared to €8.98bn (£7.3bn) posted in the same quarter a year earlier. The company posted a net loss of €943m (£765.7m) and has therefore chalked up net losses of €4.04bn (£3.28bn) so far this year.

However, the most striking revelation from the company's third quarter report was the huge decline in sales in Greater China - once a key market - down by 62 per cent to €592m (£480.7m), compared to €1.545bn (£1.25bn) in the same quarter a year earlier.

Across the world, it sold 6.3 million smartphones during the quarter, including just 2.9 million flagship Lumia smartphones, based on Microsoft Windows Phone 7. That represented a decline from the four million Lumias sold in the previous quarter this year.

The decline in Lumia sales follows Microsoft's early pre-announcement of Windows Phone 8 - due at the end of the current month - and the news that current Lumia phones will not be able to upgrade to the new operating system.

Nokia has struggled to sell a huge surplus of Windows Phone 7-based Lumias since then, cutting prices by more than half in a bid to shift unsold inventory.

According to the financial report, Nokia has some €120m (£97.4m) in "excess component inventory, future purchase commitments and an inventory revaluation related to our current Lumia products" - indicating that Nokia was as much taken by surprise by Microsoft's Windows Phone 8 pre-announcements as anyone else.

The new Windows Phone 8-based Lumias - the Lumia 820 and 920 - will be appearing in early November and have been well reviewed. However, Nokia will also be facing strong price competition from rivals HTC and Samsung in the small Windows Phone smartphone market, and the company's pricing pitches the products head-to-head with the popular Apple iPhone.

China crisis for Nokia as sales plunge causes €900m loss

62 per cent drop in China sales keeps Nokia embroiled in crisis

Net cash

The company's stock price nevertheless rose on the news due to indications that its decline may be bottoming out. It's net sales were "only" €300m (£243.6m) down sequentially on the second quarter, while the decline in net cash was also a little less than expected.

Net cash fell by €630m (£511.6m), including €390m (£316.7m) in "restructuring-related cash outflows" - primarily, redundancies and closures.

The company's falling level of cash-in-hand could be critical to its ability to either pay off or roll-over a €1.25bn (£1.01bn) eurobond reaching maturity in February 2014, as well as a €500m (£406m) "research and development" loan from the European Investment Bank, also repayable in the same month.

Its €1.5bn (£1.22bn) revolving credit facility, which provides operating cashflow, comes up for renewal in March 2016.

However, losses at the Nokia Group were offset by improving results at the Nokia Siemens Networks telecoms systems business, in which it owns a 51 per cent stake to Siemens' 49 per cent. NSN sales rose by three per cent, year-on-year, to €3.5bn (£2.84bn), and the company's gross cash position improved as a result.