3 Factors for Nokia’s Small Victory with Rising Lumia Sales

Finnish company Nokia surprised everyone when they posted strong sales for the fourth quarter of 2012.

Though the numbers aren’t official (they’ll be providing full details on January 24 at their quarterly financial meeting), Nokia says they’ve sold 4.4 million Lumia phones in Q4, and their total phone sales amounted to €3.9 billion, or roughly $5.2 billion.

The numbers are impressive, given the fact that 2012 was pretty rough on the company.  Nokia lost $2.7 billion in the first nine months of 2012, giving the lead to Samsung as the largest phone maker.  They cut 10,000 jobs, and they were given a BB-rating by Standard & Poor, a rating just a step above being deemed a near-worthless investment.

But what does this small victory actually mean?  Is Nokia’s bad streak finally over, and can they reclaim the market share they’ve lost to Samsung?

Supply and demand

One of the probable reasons Nokia posted a strong Q4 was that they did not make too much of their products.  Though Nokia CEO Stephen Elop stated that there are constraints in their supply chain leading to lower device supply, this may actually be a strategy so as not to be overwhelmed with too much supply and too little demand.  Producing less devices means less expenses, so you could say they broke even.  They didn’t have to deal with excess supply that aren’t going to be sold.

Research & development

Some of their success could also be attributed to the fact that Lumia phones are actually pretty good and their low-end phones are still a big hit, reiterating the fact that Nokia’s spent a great deal of time and effort into their end products.  Nokia sold 9.3 million Asha units, 6.6 million smartphones with 4.4 million Lumia units, and 2.2 million Symbian.  If you compare Nokia’s devices to Samsung’s, you’ll see that their high-end smartphones can actually compete.  Unfortunately, Nokia’s design may look too boxy for consumer preferences, a design factor that’s plagued Nokia in the past.

Budget cuts

We also can’t dismiss the fact that their small victor in Q4 may be due to the fact that they’ve cut spending in some areas.  In March 2012, Nokia cut 1,000 jobs from their oldest manufacturing plant in Salo, Finland.  As they focus on handling software customization, Nokia’s production moved to Asia, which we know provides cheaper labor costs in the consumer electronics space.

Will it last?

Analysts are impressed with the turnaround, but are still doubtful of Nokia’s ability to maintain this momentum.

“They will have to prove a lot more until you can say that,” Redeye analyst Greger Johansson said adding that it’s too early to call it a turnaround. “I’m not still convinced that they are going to manage to succeed with those new smartphones. They have to sell a lot more in volumes until you can say that.”