Next three interpretations come from the same man. He apparently offers consultancy services and how he manages to find employment is beyond me. The text here implies complete lack of understanding of financial dynamics of ANY company.

Now at one point in the year, Q3 of 2012, Nokia produced a 49% loss per smartphone sold. ” [1]

Not a single Lumia running Windows Phone has ever sold at a profit. Not a single one.” [2]

Nokia’s smartphone unit was so poisonous during this time, at its peak it was ‘selling’ smartphones at a 51% loss per handset! The smartphone sales were falling 64% and that, was with Nokia essentially giving them away, pricing Nokia’s newest Lumia smartphones HALF under what it cost to make them!!!” [3]

What comes to this text, it’s clueless at best. I wouldn’t buy even janitorial services from a man with brains like that, far less business consultancy. In brief:

cluemeter

Before I dig deeper into this insane text, let me first hand you a fictive story (please note that all persons, events and numbers are not reflecting any real situations):

Tomi Ahonen consultancy sells books on mobile. For the most recent book several studies were needed. Tomi wrote the book during first quarter of 2013 and bought survey results for the book. Total cost of survey results were $500. Add to that rent of premises – $700 per month – and $400 of marketing expenses in form of advertising, business lunches, etc. This all totals to $3000 of expenses for the quarter.
During that same quarter Tomi managed to sell 15 of these books, priced $100 a piece, for a total of $1500. This means that during the first quarter of 2013 the books division of Tomi Ahonen consulting was so poisonous it was ‘selling’ books at a 50% loss per book! Tomi was essentially giving books away, pricing his latest books HALF under what it cost to make them!!! And note: Not a single book from Tomi sold at a profit. Not a single one.

Did I deliver my point?
I think I did.

Now just in case I have readers who were unable to follow:
That text in beginning of this post was from blog of Tomi Ahonen the consultant. At first glance it somewhat sounds valid: Nokia’s Devices & Services unit has indeed been making loss, except for 4th quarter of 2012, despite Tomi’s fact-twisting (read here).

  • R&D costs (salaries, rent, equipment, etc.) is NOT depending on units sold in any manner. To split that per device sold is silly.
  • Sales profit – price on which phone is sold minus Bill Of Materials (BOM) and manufacturing costs – is COMPLETELY depending on units sold. E.g. Lumia 900 costs $217 per device to manufacture and was sold for $449 (despite Tomi saying it was sold for $0.01). Nokia netted $232 per device.

The operational expenses of Nokia D&S unit at that time were still in scale of hundreds of millions per quarter which means that sales of 2 900 000 Lumias in third quarter of 2012 was not enough to cover fixed costs of Devices&Services unit. The uncovered operational costs divided per handset (silly way to measure it) would have been around 50% of the price of the device. However, triple the sales to 10 million units and profit from devices sold compensates operational loss and that (still overly silly) measurement turns to profit of few percent per device sold!

So it is stupid and misleading to divide operational loss per handset sold. Implication is that triple sales lead to triple losses when in reality the smartphone unit turns profitable. (Not my text either, both Nordea Bank and Barclays estimated it would have taken quarterly sales of 10 million Lumias for Nokia to break even.) [4] Of course Nokia never got there in time.

I was asked in Twitter by @xamldude about the rumored low (or negative) margins of Lumia 520.
I do not have access to Lumia 520 bill of materials and I would just raise suspicion by asking such thing that is in no way related to my work, so I try different approach: according to UnviredView Lumia line sells with similar margins as feature phones. If the feature phone in question had 29% profit margin and we expect same margin for Lumias, it would indicate it costs Nokia $133 to manufacture a Lumia 520. Lumia 520 does not have all the bells and whistles (no Gorilla Glass 2, no flash, no clearblack display, etc.). Compared to $217 BOM of Lumia 900 from 2012 this does not sound totally impossible.
Cheapest from-store Lumia 520 I could find from Finland seems to be limited time offer of 129€ ($175). Let’s assume it is 0 margin offer to lure customer into store (they don’t take online orders on that price). In that case Lumia 520 is having rather low margin of $42 but it would still not be sold at loss. I’m not taking into account the Microsoft platform support payments that of course contribute to the issue and make it profitable even with smaller margins.

But Tomi was not addressing the margins of Lumia 520. His text was totally different and so weird he is once again either incredibly incompetent or then incredible liar. Feel free to take a pick.

REFERENCES:

[1] http://communities-dominate.blogs.com/brands/2013/02/final-q4-numbers-and-full-year-2012-stats-for-smartphone-market-shares-top-10-manufacturers-top-os-p.html

[2] http://communities-dominate.blogs.com/brands/2013/09/the-full-story-of-nokia-and-microsoft-how-we-got-here-and-why-microsoft-will-fail-with-nokia-handset.html

[3] http://communities-dominate.blogs.com/brands/2013/09/now-we-know-why-nokias-elop-had-a-25m-personal-bonus-clause-from-the-nokia-board-if-he-was-able-to-s.html

[4] http://www.tekniikkatalous.fi/ict/quotnokian+pitaisi+myyda+10+miljoonaa+lumiaa+joka+kvartaalillaquot/a871651

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