Nokia's turnaround hit by weak phone sales

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Stephen Elop, the newly appointed CEO of Nokia

Stephen Elop, the newly appointed CEO of Nokia

A disappointing set of quarterly sales figures for Nokia's smartphones and basic models raised the pressure on its chief executive and took a bite out of the company's share price.

Investors are hoping that its Lumia smartphone range, which CEO Stephen Elop decided to base on Microsoft Corp's untested Windows Phone software in 2011, will help the company revive its ailing fortunes and close the yawning lead of frontrunners Samsung and Apple, but progress has been slower than analysts expected.

Nokia shares fell as much as 6 percent after the company said it shipped 7.4 million Lumia phones in the second quarter, up 32 percent from the first quarter but fewer than the 8.1 million units forecast in a Reuters poll of analysts.

Sales of regular mobile phones, which still account for over half of its device revenues and are a valuable source of revenue while Nokia waits for Lumia sales to take off, were also weaker than expected.

Shipments of such handsets fell 4 percent from the previous quarter to 53.7 million units, while the market's average forecast had been 56.2 million.

Analysts have said weak regular mobile phone sales for Nokia in the past two quarters showed customers are moving up to smartphones more quickly than expected and switching to rival brands.

The pace of the decline has raised fears the company might may run low on cash before smartphone sales pick up.

Nokia has been cutting costs and selling off assets to buy time for a turnaround. Its net cash reserves fell to 4.1 billion euros ($5.4 billion) from 4.5 billion euros in the previous quarter, in line with expectations.

"The work with Lumia is still challenging, although there has been some progress," said Mikko Ervasti, analyst at Evli. "But they have to pick up the pace, as in mobile phones they have large volumes they may lose."

Nokia has launched several new handsets this year, including a 15-euro phone and new Lumia models. But the new handsets, while impressing many critics, have failed to halt a shift to phones running Android software developed by Google.

Phones using Android and Apple's iOS software accounted for well over 90 percent of the global smartphone market, while Windows Phone handsets account for around 3 percent, an IDC report said in May.

One bright spot in the quarterly report was the improved profitability at Nokia Siemens Networks, a formerly troubled joint venture with Siemens. Nokia agreed earlier this month to buy Siemens's stake.

NSN's operating margin rose to 11.8 percent from 7 percent in the first quarter, which put an even better complexion on the 1.7 billion euro deal Nokia had struck to buy the rest of it.

"It seems that the price they paid for the acquisition was very cheap," said Juha Varis, portfolio manager at Danske Capital.

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