Wait, Wasn't That a Good Nokia Quarter?

Last Thursday, Finnish telephony veteran Nokia  reportedits first quarterly profit in almost two years. CEO Stephen Elop waxed poetic about it all: "We are very encouraged that our team's execution against our business strategy has started to translate into financial results," he said. More specifically, Nokia's high-end smartphones are finally getting some traction. The company sold 4.4 million top-shelf Lumia phones in the holiday quarter.

Sounds like great news, right? But it's not all rainbows and unicorns. In fact, Nokia shares plunged as much as 10% on the news and haven't recovered since.

So what's the bad news that overpowered a rare sliver of good tidings? Oh, where do I start?


Net sales in the crucial handset division fell 36% year over year. Improved operating income here comes from deep, deep cost-cutting moves -- not from any kind of market success.

The Lumias may be doing all right, but other Nokia smartphones aren't following suit. Smartphone unit sales dropped by 55% from 2011 levels. Nokia sold twice as many feature phones (think dumb phones) as smartphones this quarter, and average sale prices for the combined basket fell 15%.

Oh, and inventories of unsold handsets are building up to uncomfortable levels. Nokia has six weeks of extra supply on hand, assuming that sales at least stay at current levels for a couple of months.

None of this is sustainable, and Nokia's board of directors has decided to do something about it.

Not something really drastic, like abandon the sputtering Microsoft  Windows smartphone strategy in favor of a proven platform. Oh no, Elop made it very clear that Androids are off the table as long as he's in charge. Elop made a solemn commitment to former employer Microsoft, his company acts as the standard bearer for Redmond's mobile future, and Elop won't be going back on that promise.

No, but Nokia hit "pause" on its dividend this week. Yeah, I know. Ouch.

The move will certainly conserve some much-needed cash for "strategic flexibility," as Nokia puts it. The Finns paid out $1 billion to shareholders last year, and $2 billion the year before.

But it's Nokia's first dividend interruption in 143 years, according to Bloomberg. The uninterrupted dividend stretches back through the mists of time, when Nokia was a tire company, a paper mill, a wheelchair manufacturer, and a maker of electric power transmission cables. Nokia kept the checks coming through two world wars (including a failed Russian invasion of Finland itself), untold recessions, and high water.

But the iron-man streak has ended. Smartphones are killing Nokia, and it needs the cash just to stay afloat. Maybe it's time to jump into yet another totally unrelated industry. Fast food restaurants, maybe? I can see it now -- "Nokia, connecting people to their lunch."

So in the end, the bad news overshadowed the good for real. No wacky random walks down Wall Street this time.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.

The article Wait, Wasn't That a Good Nokia Quarter? originally appeared on Fool.com.

Fool contributor Anders Bylund holds no position in any company mentioned. Check out Anders' bio and holdings or follow him on Twitter and Google+. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Tim Laubacher

They are definitely taking the right strategy by sticking with Windows Phone, which isn't languishing. Its growing and the investment will pay off in the long run. This is a three to five year thing, not a couple month thing. (I wouldn't count anything pre-windows 8)

January 28 2013 at 7:56 PM Report abuse rate up rate down Reply