Nokia's future without handset business

Nokia, which is selling its handset division to the US technology giant for $7.4 billion, said that the unit's sales fell 29%.

LONDON: Microsoft's push into the smartphone market may not get off to the best start. 

Nokia, which is selling its handset division to the US technology giant for $7.4 billion, said that the unit's sales fell 29%, to 2.6 billion euros, or $3.5 billion, in the fourth quarter. The operating loss for the division was 201 million euros. 

Sales of its smartphones declined 7% in the quarter to about 8.2 million units, despite an increase in consumer spending during the holiday season. 

Nokia's interim president, Timo Ihamuotila, said the company's midrange phone, the Lumia 520, had performed better than its high-end phones in the fourth quarter. The company said increased competition from other device manufacturers like Apple, Samsung and Sony was the primary cause for the drop in sales. 

"Breaking into the high-end market was always going to be a challenge for Microsoft and Nokia," said Nick Dillon, a senior telecommunications analyst at the research firm Ovum in London. "Windows phones still don't offer the same level of applications that are available on Android and Apple's iOS. The software is still lagging behind." 

After announcing the deal to buy Nokia's handset division in September, Microsoft said it wanted to combine its own marketing and development teams with those from the Nokia unit to increase its presence in the global smartphone market. 

Analysts said that Microsoft could still compete with rival phone makers but should focus on emerging markets like India and China, where the growing number of middle-class consumers are seeking to upgrade to smartphones. 

Nokia's quarterly earnings also gave investors their first look of what the Finnish technology giant would look like without the phone business. Most were not impressed. 

Excluding the sales from the handset unit, Nokia had a net loss of 25 million euros, about $34 million, in contrast to a profit of 193 million euros in the fourth quarter of 2012, and a drop in revenue of 21%, to about 3.5 billion euros. 

The company, which will retain its mobile infrastructure, mapping and intellectual property units after the deal with Microsoft is completed this quarter, said sales across the three divisions fell in the fourth quarter. 

That reflected in part reduced investments by some of the world's largest carriers in the infrastructure equipment used in high-speed mobile networks. 

Nokia's stock closed down 8.7%. 

As part of its overhaul, Nokia is expected to announce soon the results of a strategic review of its operations, including a potential dividend to shareholders from the proceeds of the phone sale. Ihamuotila, the interim president, declined to say when the results of the review would be released. 

The company's board also must decide on a new chief executive to succeed Stephen Elop, who will join Microsoft after the phone sale is completed. 

Analysts expect the company to focus on its mobile infrastructure business, which makes networking equipment for cellphone carriers. The unit, called NSN, represents about 90 percent of the revenue from the company's remaining operations
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