Nokia’s profits fell less than expected in the first quarter, but its market share dipped below 30 percent as demand for its entry-level handsets weakened.
Nokia’s net income slipped to $503 million in the first quarter on sales of $15.2 billion.
The company’s device shipments rose slightly to 108.5 million units, but the increase was not enough to maintain its market share.
Nokia’s portion of the global phone market slipped to 29 percent, down 4 percentage points from the same period last year. Nokia’s share of the smartphone market plummeted to 26 percent, from 41 percent last year.
Looking forward, the company warned of ongoing disruptions in its supply chain stemming from the earthquake and ongoing nuclear crisis in Japan through the third quarter of this year.
Nokia is in the midst of a major shakeup as it plans to transition its smartphones away from Symbian in favor of Microsoft’s Windows Phone 7. Nokia plans to cut $1.5 billion in operating expenses over the next two years and signed a definitive agreement on the Microsoft tie-up today, providing more details on the deal, which was first announced in February.
Stephen Elop, the former Microsoft executive who took the reigns as Nokia’s CEO last fall, said in the company’s earnings call today that major changes were in store at the handset manufacturer.
“We need to unquestionably change our pace, which means changing how we operate,” Elop said. “We need to adjust our workforce to a challenger mindset.”
Elop said the company was restructuring its workforce to be able to respond to local markets more quickly, and planned to tie compensation more closely to performance. The planned cuts in operating expenditures are expected to result in layoffs. Elop did not specify how many employees would lose their jobs, saying only that “generally all employees can stay on the payroll through the end of the year.”
This month marked the beginning of a new operational structure at Nokia. As of April 1, the company split its devices business into two units, one for smartphones and one for feature phones. The units will separately report their financial performance.
Hundreds of employees from Nokia and Microsoft are already working on creating a new portfolio of Nokia devices running Windows Phone 7 instead of Symbian. The transition from Symbian to Windows Phone 7 is still expected to take about two years, but Nokia plans to begin shipping smartphones running Windows Phone 7 in 2012.
Nokia is working to bring its Symbian developers over to Windows Phone 7 and has made Windows Phone developer registration free for all Nokia developers. The company will open a new Nokia-branded global application store that is using the Windows Marketplace infrastructure.
Developers will be able to publish and distribute applications through a single developer portal to hundreds of millions of consumers that use Windows Phone, Symbian and Series 40 devices. Windows Phone developers will also be able to take advantage of Nokia’s billing agreements with 112 operators in 36 markets.
Nokia and Microsoft also hashed out financial arrangements for Windows Phone 7 royalties and fees for Nokia’s intellectual property rights.
Microsoft will receive a running royalty from Nokia for the Windows Phone platform, starting when the first Nokia products incorporating Windows Phone ship. Specific financial details were not disclosed, but Nokia described the royalty payments as “competitive” and said they will reflect the large volume of devices it expects to ship. In turn, Microsoft will pay Nokia billions of dollars for access to its intellectual property rights.