Nokia’s Weak Lumia Sales Stall Windows Phone’s Momentum

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Nokia confirmed today that it sold 8.2 million Lumia Windows Phone devices in the fourth quarter of 2013. That figure represents a decline of 600,000 from the third quarter in which Nokia sold 8.8 million Lumia handsets.

The fall comes on the cusp of the sale of the majority of Nokia’s hardware assets to Microsoft, meaning that the slip is more Microsoft’s problem than Nokia’s. But it is a weak indicator for the larger Windows Phone platform that was showing signs of gathering momentum.

Last year was an excellent one for Windows Phone. Nokia sold 4.4 million devices in the fourth quarter of 2012, meaning that total volume nearly doubled on a year-over-year basis. And, except for the fourth quarter, Lumia sales expanded like clockwork in the year. Between the second and fourth quarters of the year, for example, Nokia sales expanded from 7.4 million to 8.8 million, a healthy quarterly delta of 1.4 million.

(Quickly, given the massive share of the Windows Phone market that it controls, Nokia’s Lumia sales can be treated as an essential proxy for the health of the platform at large. So, when we discuss Lumia sales we are essentially discussing around 90 percent of Windows Phone sales. The unit volume tracks up and down with Lumia sales.)

The decline is surprising. Windows Phone had showed little other than growing strength since the release of Windows Phone 8 in the twilight of 2012, and the release of increasingly excellent Nokia hardware.

So, from whence the decline is the question. Some have posited that the loss of momentum could come from Nokia curtailing its advertising for Lumia handsets, as the company is almost done unloading the assets. It could be that Nokia’s advertising decelerated in the period, but the company itself highlighted a number of other reasons for the decline.

As TechCrunch’s Natasha Lomas reported this morning, Nokia said the following:

The year-on-year decline in discontinued operations net sales in the fourth quarter 2013 was primarily due to lower Mobile Phones net sales and, to a lesser extent, lower Smart Devices net sales. Our Mobile Phones net sales were affected by competitive industry dynamics, including intense smartphone competition at increasingly lower price points and intense competition at the low end of our product portfolio.

In short, Nokia indicated a very competitive market, and one that was becoming more so where it had seen much of its 2013 growth: low-priced handsets. The inexpensive Lumia 520 and its variants have been key volume drivers for Windows Phone. If Lumia sales at the lower end of the market stall, the platform itself could see its expansion slip.

There are two cases to be made. The first is that, as Tom Warren calculated, Lumia sales were up 86 percent year-over-year in the final quarter of year, and total unit volume (30 million) was up 125 percent for 2013. Regardless of the final quarter, those are strong figures.

The second case is that in a growing market, you need to expand more quickly than the industry to boost your share. Windows Phone shrank in a potentially strong quarter in a growing market. Shrinking unit volume implies that Microsoft lost market share in the quarter. That’s the wrong direction. Microsoft without question needs to grow its market share to attract more developer attention.

What’s next is a good question. I think the bull case on Windows Phone is that Microsoft, with its far greater financial resources, can pour cash into marketing its platform, and therefore grow unit volume by buying it.

Still, in a quarter in which most — your humble servant included — expected another quarter of predictable sales growth, Windows Phone stumbled. Blip? Trend? It’s too soon to tell, but falling sales aren’t as good as growing sales, and given the still extant fragility of Windows Phone, the fourth quarter’s performance matters.

Somewhere in Canada people are having a pretty good day.