Quick Review of Windows Phone/Lumia 820

About a month back, I broke my self-imposed promise of never buying a Windows Phone, and purchased a Lumia 820. There are a few reasons why I chose a Lumia over the iPhones or Androids.

• Why not an Upgraded iPhone? - My previous phone was the iPhone 3GS, which I thoroughly enjoyed for about 1.5 years. I missed a good primary camera (before the iPhone I had a Nokia N8), front facing camera for Skype calls, good video recording, and a battery that lasts the whole day. The 3GS was a great phone... actually, make that a great "entertainment device". As a phone, the iPhone was moderately good. Several times the phone would lose network connectivity, and not tell me about it (i.e. the RSSI indicators still sow full signal, but drop down when I try to make a call). I used to get a lot of complaints from people trying to get in touch with me, that my phone's always unreachable. Well, despite this issue, I loved using the phone, for surfing, facebook'ing, twitter'ing, keeping track of my stocks, and catching up on emails. But the minimal customization meant that I was getting tired of the UI... I guess this is bound to happen, as we use our phones every hour that we're awake. So when I was thinking of an upgrade, I was sure it's not going to be another iPhone. Although the Apple store was running a good offer of 7,000 bucks off on the iPhone 4, and 4S, but by now I was questioning what good would it be buying a phone which looks and feels pretty much like my old phone, but has some incremental improvements. So no iPhone for me!
• Why not Android? - Android would have made the most sense, since I recently landed a job with an Android OEM, and was eligible for a product discount, but somehow I didn't want an Android phone. The main reason (and a very personal reason, IMHO strictly), is that I find the Android UI very un-aesthetically designed. The different screens have no unifying concept, and it looks like messy patchwork to me. Maybe it was my work - the fact that I have to handle these phones most of my working hours may have built a "familiarity breeds contempt" syndrome. So again, no Android.
• Why Lumia? - One reason for leaning towards Lumia is of course, Nokia. Firstly, I worked for Nokia for a good 6.5 years (5 years as a employee, 1.5 years as a Accenture sub-contractor). There's still a good bit of emotional connect with the company, and I do want them to do well, as it's a good company. Emphasis on "good" is the topic of a later post maybe. Now, besides this emotional connect, there were a few things that I looked forward to from a Nokia phone - firstly, the great design. The Lumia devices all look great, and Nokia has even won design awards for the 720, 820 and 920 series (or was it 620, 720... I forget, but you get the point). 

Sure looks good, just sitting there!

The second reason for Lumia was that as a ex-Nokia customer, there are a few things that I can take for granted - for e.g. the camera will be great, the audio quality excellent, and the battery life better than either iOS or Android. The presence of HAAC (High Amplitude Audio Capture) was also a feature that I was looking forward to, as I am an amateur musician.
At this point, maybe I could also explain why I chose a 820, and not the then-flagship 920... well the reason was that I was still not too sure about the Windows Phone platform. So I thought, instead of paying big bucks for the 920, and then having the possibility of not liking the phone interface, and cursing myself later, the 820 was a more affordable way to take a peek at how good or bad WP8 really is.

A Look At the Pre-Elop Years

Recently I got a really relevant comment on my earlier post on Nokia. Let me copy-paste the comment here.

Anonymous said...

It Would be nice to see pre-Elop year in the graphs. Let's say Q3 2009 onwards. Now we know Nokia switched the strategy but do not e.g. see the rise of Android and drop of Nokia market share behind it.

April 20, 2013 at 9:00 AM

I created this post to extend the revenue & profit graphs in the pre-Elop years. In fact, right from Q1 2009 to Q4 2012. So here's the first graph, showing revenues & net profit for Nokia group.

Click for larger view

As can be seen, the revenues were rising from 2009 onwards, peaking in each Q4 (the Western holiday season which sees greater revenues). However, the profitability of the company was not too great. Q3 2009 was loss-making, while most of the quarters, Nokia manged to make a few 100 million euros of profit.

Profits shot up in the Q4 of each 2009 (882 million euros), and 2010 (742 million euros). In Q1 2011, Elop's new Windows-Phone strategy was announced, and revenues started falling, and profitability was hit. But this was covered also in the last post.

Although it is easy to see that revenues were higher in the pre-Elop years of 2009 and 2010 (Elop joined Nokia in Q3 2010), one can always argue that the profitability of the company was in question. So was Nokia feeling the heat of the iPhone and Android beating down on it's profitability? To answer this,as in the last post, I looked at just the "Devices & Services" business... the one which is responsible for the smartphones and feature-phones.
So here's just Devices &Services over the same quarters...

Click for larger view

Now this graph shows solid revenue, profitability and growth in Devices & Services until Q4 2010. Note that the nature of the industry is such that the "Q4 peaks" will always occur. So for e.g. it was not alarming that revenues fell from Q4 2009 to Q1 2010. Note that even in weaker quarters, D&S maintained respectable profits. In fact, in some quarters it was the "sole bread earner", compensating for NSN's losses. All that changed from Q1 2011. Of course, there's no point in going over that again, as it's already covered in my last post.

End of the year look at Nokia

It's almost been 2 years since Nokia CEO Stephen Elop announced the drastic strategy change in smartphones from Symbian & Meego to Windows Phone. The announcement was done in Feb 11, 2011 - a date well remember by all ex-Nokia employees like me. At the time the strategy change was announced all of us knew that a change is needed. Symbian - once the most widely used  smartphone OS - was losing it's appeal. Symbian's UI was unintuitive, execution was slow, and organization was slow and bloated beyond imagination. Meego was promising, but was taking forever! 

A drastic change was needed, but was the shift to Windows Phone - an unproven smartphone OS from Stephen Elop's former employer - the correct choice? Let's take a look at how Nokia has been performing financially, ever since Stephen Elop took over (third quarter, 2010) to today.

Nokia Revenues Q3 2010 to Q3 2012

The above graph plots Nokia revenue & net profit over Q3 2010 to Q3 2012. In Q3 2010 Nokia earned approximately 10 billion euros in revenue, and only 322 million in profits. Not the best performance for a quarter - earning just a few hundred millions for over ten billion in sales means that something needs to change in the company. That "something" would probably be controlling costs, increasing ASP (Average Selling Price of handsets) by focussing more on smartphones, and getting rid of businesses that were burning cash. 

Some Thoughts on Android & Nokia's Lost Oppertunity

After working on Nokia's Symbian OS for around 4 years, I've recently started exploring the Android platform from a technical architecture perspective. The more I explore, the more familiar it seems. One reason of course, is that below the Java layers - what is known as "native" software in Android - it's all regular C/C++ based embedded software on a Linux kernel. Maybe it seems even more familiar to me because my work in Nokia involved a little bit of Maemo/Meego integration also. Indeed, below the Java layers, once could theoretically mix & match code from AOSP (Android Open Source Project) and Meego, and yet have a device that works!

The picture below is an over-simplified system architecture diagram, but helps explain a very high level view of Android.

Android architecture from developer.android.com

The Java layers, which I refer to are the top two layers in blue. The rest (libraries & kernel) is regular C/C++  software running on a Linux kernel. 

Nokia in Q2 2012: A lighter balance sheet, and a free OS

I’m not doing a full analysis of Nokia Q2 2012 results here. Very briefly, Nokia group revenues were 7.5 billion EUR with a loss of 1.53 billion EUR. A billion plus euro loss cannot be very rosy, of course, but maybe investors expected worse, as the stock price spiked up briefly after the announcements of the results on Thursday, 19 July.

Revenue & Profitability has taken a hit for the last one year, when the strategy of shifting from Symbian & Meego OS’es to Windows Phone has gone disastrously wrong for the company. A very detailed analysis of this strategy gone wrong can be found on Tomi Ahonen’s communities-dominate blog. As for this current post, the chart below tracking Nokia revenues is enough to describe the problem.

Nokia revenues - falling since 2011.

But in this post I try to delve into some of the revelations in the Q2 earnings release.

4 Billion EUR Lighter Balance Sheet

If we take a look at the balance sheet on Nokia's Q2 earnings release, there is a reduction of assets of about 4 billion EUR between Q2 2011 and 2012. About 1.4 billion EUR of this comes from impairment of Goodwill & amortization of intangible assets. This is also explained in a discussion on the operating results in the Q2 2012 interim report.

"During the second quarter 2012, based on a combination of factors, including the decline in our market capitalization, credit rating downgrades as well as our operating results, we concluded that there were sufficient indicators to require Nokia Group to perform an interim goodwill impairment analysis as of June 30, 2012. "

This explains the 1.4 billion reduction in goodwill and intangible assets. But what else did to reach this 4 billion EUR figure? 

"In the second quarter 2012, Nokia recognized EUR 800 million in valuation allowances related to its Finnish deferred tax assets in accordance with accounting standards "

Deferred tax assets is when a loss making company expects to make profits in the future, and sets aside a portion of their losses as tax credits to take advantage of, when they return to profitability. But this is allowed, in Finnish and International accounting laws, only if there is sufficient indication of the company returning to profitability. Deferred tax assets sits on the balance sheet as a current asset, and this accounts for another 800 million of the total 4 billion reduction in assets. 

The rest of the 4 billion is made of lower accounts receivable (amounts due to the company), and prepaid expenses. 

Now, I may be reading a bit too much into this, but cleaning up the balance sheet of intangibles, and deferred tax assets may be to make it more palatable to a buyer. Even though Nokia is currently valued low (it's currently valued lower than what Motorola was picked up for), most buyers would not be convinced by intangibles & goodwill on the balance sheet. Goodwill comes up when a company acquires another company, and pays more than the net asset valuation of the acquired company. The excess amount paid is not treated as a loss, but projected as an asset, which is the intangible valuation of expected synergies from the acquisition. Goodwill appears on the Nokia balance sheet because of the past acquisitions of Navteq, and others. 

Estimates for Nokia 1Q2012

Update on 19-April

Results are now avialable at http://www.results.nokia.com/results/Nokia_results2012Q1e.pdf

I was close on the revenue, but way underestimated the loss. In particular NSN made bigger losses than I expected.


My estimate of Revenue: EUR 7.8B
Actual Revenue            : EUR 7.4B
My estiamte of Losses   : EUR 0.3B
Actual Losses               : EUR 1.5B

Original Post from 14-April

Just to make it clear in the beginning... Nokia reveals it’s 1Q 2012 earnings next Thursday (19-April-2012), and this is just an estimate based on recent announcements made by Nokia. Last week, Nokia lowered it’s outlook for it’s Devices & Services business in the first quarter of 2012.


What was stated
Nokia stated that in 1Q 2012

• Operating margin was negative 3% for Devices & Services.
• Net sales was 4.2 billion EUR.
• Out of the above, Mobile Phone (i.e. feature phones) sales was 2.3 billion, while Smart Devices sales was 1.7 billion EUR.
• Volumes were 71 million feature phones and 12 million smart phones.
• Gross Margins was 25% overall, with 26% in Mobile Phones & 16% in Smart Devices.
• Cash & liquid assets were 4.9 billion EUR.

Interpretation
Devices & Services forms the largest business unit in Nokia, followed by Nokia-Siemens Networks, and lastly, Location & Commerce. Nokia reports Devices & Services sales as the summation of the sales of the Smart Devices & Mobile Phones. In the last quarter, i.e. Q4 2011, Nokia sold 19.6 million smart phones. We know that this number has decreased to 12 million now. Similarly, in Q4 2011, Nokia sold 93.9 million feature phones, and this number has reduced to 71 million.

Devices & Services	Q4 2011	Q1 2012	QoQ Change
Smart Devices Net Sales	2747	1700	-38.11%
Mobile Phones Net Sales	3040	2300	-24.34%
Other (Royalties, Microsoft Payments etc.)	210	200
Sales	5997	4200	-29.96%
Smart Devices Volumes (million)	19.6	12	-38.78%
Mobile Phones Volumes (million)	93.9	71	-24.39%
Volumes	113.5	83	-26.87%
Smart Devices Gross Profit	546.65	272	-50.24%
Mobile Phones Gross Profit	842.08	598	-28.99%
Gross Profit	1547.23	1050	-32.14%
Operating Profit	293.85	-126	-142.88%

Figures in miillion EUR

With these estimated results in devices & services, if I add the estimated sales & profits expected in Location & Commerce and Nokia-Siemens Networks, then it should give the full estimated Nokia P&L statement. Location & Commerce sales have been too small (range of 200~300 million) to impact the top line as much as the other divisions. Last quarter (Q4 2011) it impacted the bottom line due to a 1 billion EUR goodwill impairment (discussed in a previous post). The nature of this loss could be considered a one-time event, so I assume it has no impact on the profits as well. With Nokia-Siemens Networks (NSN), the sales have been declining at a rate of 4% QoQ in Q4 2011. Assuming this same rate continues, this division should generate about 3.6 to 3.7 billion EUR in revenue. NSN is expected to have an operating margin of -5%, or, in other words, a loss of about 183 million. So combining these, we get the expected Nokia Q1 2012 results below (figures in millions).

Full Nokia	Q1 2012
Sales	7860
Net Profit	-309
Device Volumes	83

Assuming no other source of profits (for e.g. royalty payments, Microsoft payments etc.), it seems like Nokia will make a loss of about 300 million EUR this quarter.

Analysis of Nokia 4Q 2011 results

Results Summary
21% Year on year decline in revenue, 155% decline in earnings per share (IFRS), and 8% decline in mobile device volumes. Things certainly dont look too good for Nokia, especially considering these are Q4 results (the Christmas quarter). As the interim report states...

"On a year-on-year basis, the decline in our total Devices & Services volumes in the fourth quarter 2011 was driven by significantly lower Smart Devices volumes. Mobile Phones volumes were approximately flat year-on-year. "



Specifically, "Devices & Services" business saw a 29% decline in net sales, 11% decline in operating margins. The decrease in margins are quite likely due to the shift to Windows Phones OS, which increases the BOM if each phone (licensing royalties to Microsoft). At least I see no other explanation, as gross margin is very simply revenue - cost of goods sold.

Revenue & Net Profit Trend
I tracked Nokia’s revenues & profits over the last 3 years, and the chart below shows the trend from 2009 to 2011.

Nokia 2009 to 2011

The two peaks in the blue revenue line shows the seasonal phenomenon in the electronics/computer industry where Q4 sales are always much higher than previous quarters. It is interesting to see that there was a good peak in Q4 2010, but it was followed by a quick decline in Q1 2011 onwards. This is most likely due to the 11-Feb-2011 announcement of moving away from Symbian, which reduced the demand for Symbian smartphones overnight. As Nokia says...
"Following the announcement of our strategic partnership with Microsoft in February 2011, our strategy included the expectation to sell approximately 150 million more Symbian devices in the years to come. However, changing market conditions are putting increased pressure on Symbian. In certain markets, there has been an acceleration of the anticipated trend towards lower-priced smartphones with specifications that are different from Symbians traditional strengths, which has contributed to a faster decline of our Symbian volumes than we anticipated."
While the revenue is increasing sequentially (i.e. increasing from Q3 2011 to Q4 2011) it falls short of what Nokia was selling in 2010, and even in 2009. This is probably quite serious for the company... it’s performing worse than it was 2 years back.

A Week With the iPhone: A ex-Symbian addict's view

One week back, on an impulse, I bought the iPhone 3GS. I explained why in my last post. In this post, I share my first week’s experiences moving from Symbian to iOS5.

General Usability
Setting up the phone was quite simple. Apple provides a small pin to pull out the SIM card slot at the top of the phone. Once the SIM is inserted, the phone has to be powered up, and it guides you through the installation process. 

Setup screens.

I had no problems transferring my contacts, since all my contacts are on Outlook (MS Exchange). Once I configured the Exchange account, all contacts were there for me on my new phone.

I have been quite used to the Symbian way of "Menu" button based browsing apps and settings on the phone. On iOS, there is no "Menu" button. All the settings and apps are there on the various home-screens, and you just tap the icons directly. Of course, Symbian Anna & Belle had pretty good home-screens, but they had shortcuts and widgets...you could still press the Menu key to get to the application, and that’s what is not there in iOS. It’s more simple, I guess, but at times I find myself pressing the "Home" button, thinking it would take me to the "Menu" (old habits die hard). I also took some time to figure out that there is no option for closing or exiting an app in iOS. Pressing the home-screen is the way to close an app.
As expected, I found iOS to be more responsive than Symbian in launching of apps. To be fair, there are times when the phone is sluggish, you press keys, but are not sure if it has registered, etc etc, but overall I find that the launch times of most applications are quite faster than on Symbian. One reason could be the more powerful Cortex processor, which Symbian phones still dont have. The other reason is that the application development concept itself is different. For those interested here is an excerpt from the Apple developer pages.

"For example, an app’s launch time is almost always something you should improve during the development process. Other critical tasks should always be performed quickly. When a task cannot be performed quickly,
your app’s user interface should provide some clue to the user that the task may take additional time. Tasks that cannot be performed quickly should not block the user interface; perform these tasks in the background instead."

Content (Apps, Games etc)
One buys a smartphone these days with the single objective of loading it with favorite apps. Both Symbian and iOS have a vast library of apps, games & themes. But I am impressed by two things in the iOS app store

1) Ease of finding the app you want - It is quite simple, just type in the iTunes search box. I wonder why Nokia Ovi Store made it so difficult for me to find anything.
2) Quality of apps - Apple’s stringent scrutiny sure pays off here. I used to download and even buy apps from Nokia Ovi Store on my N8, but apart from the Angry Birds series, I never found anything that was compelling enough to hold my attention. But for every app I downloaded for the iPhone, I was addicted to it. The games are real fun, and quite engrossing as well.

Screenshot from Metal-Storm game.

The e-Books have opened up a whole new category to me. I got the entire Sherlock Holmes collection for free from the app store. This is really cool, and I love reading these e-Books.

The complete Sherlock Holmes.

2011 Smartphone Market Share

What would be the 2011 market share for smartphones by OS platform? If predictions by Gartner & IDC are anything to go by, Android is clearly the winner & Windows Phone at the bottom. Both Gartner and IDC have released their forecast for 2011 market shares. Both have similar figures, as expected, but Gartner is slightly more optimistic iOS and Windows share. But overall, their figures differ by 1 to 1.5% only.

The chart above is a average of the two analytic firm's predictions. 


Looking at this, I could draw the following conclusions...

• Android is the new Symbian
• iOS is the new Blackberry
• RIM itself is down but not out
• Windows - Long way to go to become anywhere close to the "3rd ecosystem".

Why I will not buy a Nokia Windows Phone

Last week, Nokia announced the launch of it’s Windows Phones, the Lumia 800 & 710. Normally, a new cutting-edge smartphone from Nokia would interest me, as I have been a loyal Nokia customer for all of 11 years, and a Nokia employee for quite near to 5 years. But there is one reason why I will not buy these phones, even though they seem to be reasonably priced.

Every morning, as I settle down in my cubilce for another days’ work, I open my laptop, and stare unproductively at the screen as I wait for it to wake up. Once awake, I open Outlook, and again stare at the splash screen while it says “Processing...” endlessly. I cannot help but think that there’s got to be a better alternative. But there isn’t. Microsoft has made sure that it’s “Wintel” monopoly (Windows OS, Intel Processors) is so near complete, that there are no practical alternatives. Yes, we have Macs, and we have Linux, but neither are very practical. Mac, is still very expensive for what you get, and Linux, though free, has still some issues.

I have tried Ubuntu Linux on my home laptop. I loved it. It booted up in a jiffy, woke up from sleep in an instant. Ubuntu installed much faster, and with less hassles, than any Windows XP install that I have done (I have not installed Windows 7 myself, so cannot comment). Wireless LAN/WiFi setup was done in seconds, printer & scanner took a bit longer, but still was quite straightforward. But my love affair with Ubuntu did not last long. I soon ran into major issues syncing my iPod and my Nokia (Symbian) Phones. There seemed to be no easy way, and this was so important to me that I reverted back to the hated Windows XP.

But XP was fast when I installed it. I thought maybe I was biased. Maybe in my home laptop... where Outlook, Powerpoint, Word & Norton would not be needed... would not start slowing down. I was wrong. A few months of use, and it’s slow. Boot up has started taking significantly more time. Where previously I could press the power button and wait just about 45 seconds to start working, now I have to go and get coffee and come back to see the curser is still hour-glassing.

Microsoft software IMHO are not the best. Microsoft business practices of encouraging a monopolistic environment are even worse. It would not be good for the smartphone customers if a WinComm (Windows OS with Qualcomm processors) mimics the PC Wintel monopoly. Which is why, when it’s time to upgrade from my Nokia N8, I will be most likely looking at a Samsung Galaxy SII.

A Brief History of Symbian

1998 to 2001: Genesis

In 1998, several mobile handset manufacturers gathered around to bid for British company Psion’s embedded operating system, code named “EPOC”.  Psion was a PDA manufacturer then, and EPOC was their transition from 16-bit to 32-bit operating systems. The consortium of companies, consisting of Nokia, Motorola, Ericsson, NTT Docomo & Sun Microsystems acquired the EPOC operating system, along with key personnel of Psion, and formed Symbian Ltd. Motorola later left this consortium, and was replaced by other firms like Panasonic, Sony-Ericsson & Samsung.