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Opinion: Finnish phone giant must phase out Symbian or die

The situation at the world's largest phonemaker Nokia Oyj. (HEX:NOK1V) has deteriorated substantially in the last year and a half.  Unable to compete against Google Inc.'s (GOOG) Android and Apple, Inc.'s (AAPL) iOS in the lucrative smartphone market, Nokia made a bold gamble and partnered with Microsoft to deliver Nokia Windows Phones.  

I. Another Brutal Quarter for Finland's Nokia

The deal was presumably first conceived with the installment of ex-Microsoft Corp. (MSFT) VP Stephen Elop in September 2010, just a month before Microsoft's formal launch of Windows Phone 7.  The pact was formally announced on Feb. 11, 2011.  As part of the pact, Microsoft pledged to pay Nokia billions divided into a series of quarterly payments, the first of which began to trigger last year.

Nokia on Thursday reported [PDF] its financial results for Q1 2012, a key barometer of the deal and the company's overall health.  The results were slightly worse than expected.

Financial Times information indicates that of the 27 analysts surveyed Nokia was estimated to make $7.45B USD.  Actual sales came in at $7.34B USD -- appr. 1.5% lower than expected.

Nokia's problems are numerous.  Smartphone sales fell in half on a year-to-year basis (51 percent).  But Nokia's feature phone sales also fell by 16 percent (with a 32 percent revenue erosion), thanks to fierce competition by Samsung Electronic Comp., Ltd. (KS:005930) which is pushing hard to become the world's top seller of mobile phones (both feature and smartphones) in 2012.

There are, however, some promising signs from Nokia.  The company has commited a lot of effort overhauling its feature phones with the new Asha lineup based on the lightweight S40 operating system.  Likewise Nokia's Lumia 900 is by some indications close to becoming Microsoft and Nokia's first major sales hit in the U.S. -- despite difficulties in Europe.

Lumia 900 in Hand (3/6)
The Lumia 900 LTE (Click image to enlarge) [©: Jason Mick/DailyTech LLC]

Nokia's smartphone sales have fallen to 11.9 million units for the quarter (which closed in March, before the Lumia 900 LTE launch).  

The issue appears to be all about execution.  Nokia's Lumias are one of the most promising product lines on the market, but it started with its lowest end models first, only bringing more exciting models to bear this spring.  The result is that the public were conditioned that Lumia is synonymous with low end hardware -- not exactly the best image to cultivate.

Likewise Nokia has allowed the Symbian lineup to linger around far too long.  Customers know this is a dying platform and few are signing up.  Nokia has put itself in a problematic situation.  First it has committed to Microsoft which demanded a certain uniform set of standards (in terms of hardware spec, including device buttons).  At the same time Nokia has a broad lineup of Symbian devices that do not meet those standards.

Nokia's response is to essentially do nothing and hope to slowly rebuild its lineup via brand new Windows Phone models.  While this approach certainly breeds some bold designs, it also does not speak to the reality of the sales crunch facing Nokia.

The just-slightly-worse-than-expected quarter did trigger a bit of a reaction from Nokia.  The company demoted veteran sales Vice President Colin Giles, two year after his rise to the position.  Mr. Giles will not be replaced -- Nokia plans on "reducing a layer of sales management" -- shrinking its core management echelon (the Nokia Leadership Team) from 14 (with Giles) to 13 (without).

III. Analysis: How to Fix the Mess

At this point it is imperative for Nokia and Microsoft to work together to relax Windows Phone's requirements enough to allow Nokia to transition its Symbian line to Windows Phone within a quarter or two.  

Nokia is at least well positioned to weather the storm with $9.8B USD in cash.  While the net loss of $1.34B USD for the quarter helped to chip away at that war chest, it's not to late for Nokia to make the necessary changes.  

Nokia wide
[Image Source: TechnoBuffalo]

The company is at a turning point.  From our perspective if it does four key moves, it will turn around and (re-)experience success.  To recover it must:
  1. Swap out Symbian NOW.
    Launch a new brand, and place all Symbian phones in this brand, transition them to be budget Windows Phones within 1-2 quarters via a relaxation of the spec.

    Symbian is dead.  Face it.  Nokia should just count these as lost sales if it cannot convert them to Windows Phone.  A handful may dispute this, but they're in denial of reality.
  2. Use Lumia as a Premium Brand
    Continue to push Lumia as the premium Windows Phone brand.

    The Lumia line is not Nokia's problem.  In fact, though the marketing has been somewhat poor, it has many impressive models.  Nokia needs premium models to compete with Apple and Samsung.  Growing Lumia alongside a new low-end Windows Phone brand that swaps Windows Phone into existing models makes perfect sense from this differentiation perspective.
  3. Put 41 MP Camera Phone on Verizon
    Launch the PureView Windows Phone variant on Verizon Wireless -- a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group Plc. (LON:VOD).

    America was recently bumped to the second largest smartphone market in the world, but it still is the world's most lucrative market.  Thus U.S. market success is as critical now as it ever has been.  Nokia did a good job placing a high profile model into AT&T's lineup.  AT&T is America's SECOND largest carrier.  Now to complete its push, it need a Verizon Lumia.  Verizon loves exclusive handsets -- the Pure View would be the perfect model.  The price of admission will simply be putting an LTE modem onboard.
  4. Win Chinese Smartphone Buyers
    Move aggressively to bring, push the full Lumia lineup to China.

    While the U.S. market is still perhaps the most critical market, for the reasons outlined above, China is now the world's biggest market.  And it's a market Nokia has traditionally excelled in.  A big China push will help compensate for poor sales in Europe.
  5. Don't Forget About Feature Phones
    Improve feature phone marketing efforts and turn back Samsung in developing markets.

    If Nokia feature phones were booming, things wouldn't be quite so bad for the Finnish phonemaker.  As is, the situation is dire not just due to plunging smartphone sales, but also due to the drop in both feature phone sales and profitability.  Feature phones are Nokia's revenue workhorse.  Smartphones may be the 3 point shot, in basketball terms, but Nokia must not neglect the easy layup -- feature phones.
If Nokia does these three steps, again, I see it returning to success. If it does not, the likely outcome will be death and marginalization.  That would be a very tragic outcome, given the promise that this company has.  But recall, I predicted Hewlett-Packard Comp.'s (HPQ) phone market exit, literally one day before its Palm unit was shuttered (and, no, I had no inside knowledge, just was looking at the big picture).

The reality is that the smartphone market is among the world's most competitive businesses to be in.  HP learned that the hard way.  Research in Motion, Ltd. (TSE:RIM) continues to learn that the hard way, and is very likely to vanish from the market within a year.  Nokia is in a similar position to the Android phonemaker HTC Corp. (TPE:2498) -- it's hurting, but not out of the game yet.  But like HTC, Nokia has little margin for error if it hopes to avoid following in the footsteps of Palm and RIM.

Sources: Nokia [Earnings; PDF], [Sales VP resigns]

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Jason - Jason... You are becoming too attached.
By Aries1470 on 4/19/2012 8:07:59 PM , Rating: -1
Well, it was a good read of someone’s personal opinion and sensationalism.
Could you please try to refrain or at least add, that you are putting wishful thinking.
People may think that you are now being paid by M$ (your call ;-) ), for showing such a support.

Before it was all about Android, now M$ tomorrow who?

Anyway. Since you want to put it that way, then I can also comment and say the following:

M$ should make 3 – 5 categories.
1. Insane premium handsets with all the gadgets and features you can put in a handset.
This can include:
a. EVERY TYPE OF SENSOR available.
b. Optional hardware keyboard.
c. Xenon Flash Light.
d. 12MP as minimum camera, maybe two rear and one front facing.
e. Extra Hi-Def Sharp made screen.
f. 2GB ram memory and 64GB internal with an option for external memory card
g. 3.3Ah battery as minimum. Hey Moto can, why cant they?
h. Premium business application. Office on the Go?
i. Dedicated micro-hdmi port with option for showing something on that port and doing your business on the phone screen – Great for showing customers things without showing personal info.
j. Deluxe docking station with usb expansion so you can transfer files between your phone and an external H.D.D.
k. Mobile / Portable docking station. This can have its own battery so it can power the H.D.D. / S.S.D. & phone.
l. NCF Tags

2. A few less features:
These can be slightly lower screen res to 720p
Less ram & storage, like 1GB ram and 32Gb on board.
Lower specc’d battery, like a 2.8Ah
Come with a standard docking station that is for HDMI & Charging
3. Cut a few more feature. The list can go on…

I will let the other posters add their ideas etc.

By mckinney on 4/19/2012 8:51:17 PM , Rating: 2
Jason is fanboy DT viewer want him to be.

I like Nokia, too bad they didnt get a better CEO. Elop said in an interview that they went for Windows Phone to help "enter the US market". For a company of that size to react to current market conditions at that time (not future global growth) is poorly planned. How could they overlook the big picture with China? They bled 70% market share in the east. They should have focused on keeping market share there instead. At least Elop is honest to say "actual sales have been mixed". With their stock down, MS should look at buying them, unless they think it is a risky investment, or Nokia should entertain shipping an Android phone also.

Also, for all of the talk, where is ATT's pre-order numbers for the Lumia 900 launch? Within a day of opening online pre-orders, ATT bragged about the Iphone 4S presales figures of 200,000 units in the first 12 hours. It has to be better than Kin. I mean, your giving the phone away for gods sake. After a week at the top spot on Amazon, the 900 is down to #5.

As far as Verizon, I dont get the impression they think the handset is great. If you read between the lines, they want to push another OS to leverage against Apple and Google.

Nokia should have launched it for the holidays, I would have got instead of the Skyrocket. Unfortunately it sounds like there will be no upgrade to WP8 for current devices (not that Samsung is much better at getting ICS out for the Rocket.....)

By drycrust3 on 4/19/2012 9:13:33 PM , Rating: 2
On the 100th anniversary of the Titanic, there is always something sad about watching "an unsinkable ship" slowly but surely going to the bottom of the sea.
With every major rethink in technology there will be winners and losers. Nokia managed the transition from being an telco instrument and equipment supplier to being a mobile phone supplier with success, but the huge technical advantage they had over competitors then has now been lost.
Their competitors have the technical advantage, which means Nokia has to use its strengths, like designing snappy looking phones, or getting better use out of their contract with Microsoft, or own brand kiosks in the shopping malls in China, to stay in the market.

By Martlark on 4/19/2012 9:46:55 PM , Rating: 4
Nokia wasted many years and billions of dollars entertaining follies such as Maemo and the n series. It was very obvious that they would not be able to convince any other mobile manufacturer to take that OS up. And so it was doomed to be a Nokia only cul de sac. Once again a big company has deluded it's self into believing that it can ignore the market place and impose it's will un the unwilling. Hubris is the only winner here.

By Church of Dirac on 4/19/2012 11:32:37 PM , Rating: 1
Once again a big company has deluded it's self into believing that it can ignore the market place and impose it's will un the unwilling.

Seems to be working well for Apple...

By messele on 4/20/2012 7:29:30 AM , Rating: 2
Odd as Apple re-defined the market and companies like Nokia struggled to see what was happening under their own noses.

Witness RIM and their still stuck in the mid 2000's BlackBerry.

RE: Jason - Jason... You are becoming too attached.
By B3an on 4/20/2012 12:18:43 AM , Rating: 3
You do know that when you write "M$" (is it still 2001?) it's only going to make you look like a retard and no one take you seriously.

By messele on 4/20/2012 7:36:28 AM , Rating: 2
Yeah I agree with B3an. Changing letters to other characters in names is not clever and does indeed make you look like a sweaty early 2000's mouth breather.

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