Nokia Corp. (NYSE: NOK) is not shipping enough of its Lumia smartphone to make a dent in the market or pull itself up to be more competitive. CEO Stephen Elop has said as much in a statement pre-announcing the company's first quarter results.
I also pointed out in a previous blog that the company faces major hurdles and may find itself chasing the tail of the opponents as Apple Inc. (Nasdaq: AAPL) iPhones and Google (Nasdaq: GOOG) Android devices accelerate market gains.
Nothing in the above is new. However, analysts are beginning to question Nokia's ability to regain market share and even doubt the strength of its alliance with Microsoft Corp. (Nasdaq: MSFT). That relationship was supposed to help Nokia better compete against Apple and Samsung while breathing new life into Windows smartphone operating system.
I found a recent report on Nokia by Ian Fogg, an analyst with market research firm IHS Inc. both educative and alarming. I have reproduced it below. Nokia's shareholders and other stakeholders (employees, suppliers, and customers) need to forcefully prod management for the kind of shakeup that may revive the company's fortune.
The concerns Fogg raised about Nokia are similar to the ones many identified in the case of Motorola Mobility Inc. (NYSE: MMI) years ago. The company failed to stem the losses and ended up being acquired by Internet search engine provider Google. Nokia may be able to turn itself around -- if it gets the correct treatment. The following paragraphs were excerpted from Fogg's analysis:
Nokia stands on the brink of failing with its smartphone strategy, again. Just over a year ago, in February 2011, Nokia chose to switch from Symbian to Windows Phone as its primary smartphone software. Now, Nokia's Lumia range have been on sale for four months, but Nokia is struggling to achieve sales traction. For every Lumia smartphone shipped in Q1, Nokia shipped five smartphones running the legacy Symbian OS that Nokia is winding down.
Nokia's smartphone revenues make for no better reading. Across all of Nokia's smartphones their gross margins were poor at just 16 percent. The problem for Nokia is that when poor phone shipment results combine with poor revenues at the same time there is little room to maneuver. Nokia has a little tactical room, but it will rapidly vanish unless the results improve in Q2 and Q3.
Nokia's poor results with Windows Phone are not due to Nokia's failures. The Lumia devices have attractive and differentiated industrial design, in a smartphone market where every handset maker is struggling to stand out. Nokia shipped the launch devices on time and at attractive prices. Nokia's problem is that Microsoft appears to have stood still. A year and a half after Windows Phone 7's debut, it has changed little. In effect, the gap in features between Windows Phone and Android or the iPhone has widened and not shrunk as Nokia needed it to.
This current second quarter is the critical time for Nokia and for Microsoft. The Lumia 900, Nokia's first Windows Phone flagship in the US has just gone on sale. The Lumia 900 has to succeed. With large US sales will come a large attractive market of consumers that will encourage the US-headquartered Internet companies to build the quality apps that Windows Phone so desperately needs. With US failure, Nokia will be locked out of the premium part of the US handset market, again, and Windows Phone will need a complete rethink.
When [Nokia] CEO Stephen Elop made the brave move to embrace Windows Phone, he said there was no plan B. Given the results to date, IHS Screen Digest believes that now is the time for Nokia to create a back up strategy to the current Windows Phone endeavor.
Rich, Wicked! Just plain wicked! But seriously, I thought it ridiculous Stephen Elop's claim that he was surprised at the company's performance. What was he expecting? He cuts off the wrong limb and proclaims shock the patient didn't get well. Ridiculous.
Well, I wouldn't automatically equate making fun with lack of sympathy, or ill will. A lot of the time it is just a way to point out that a situation needs correction (where the correction involves hiring me once I finish my Finnish studies). So my kidding Elop and Nokia isn't really connected with lack of sympathy or ill will. And, besides, Elop et al are so far removed from any harm I could do them, that their well being doesn't depend in the least on what I say. So, I'm free to kid them with clear conscience that my kidding will not dent said Elop's grocery money, but will instead delight the millions and millions of readers who come to this site looking to learn more about the top links in the global supply chain.
I'm especially free to point out Nokia's problems when the New York Times does it, too! Here is an online version of an article they published under the print headline of "Windows Phone's Mixed Success is Slight Salvation for Nokia." (The online version of this article is slightly different, with a different headline and somewhat different text, but it's practically the same article. I checked. Not surprisingly, the online version incorrectly references the print version's headline. The New York Times should hire me to fix those things for them, once I learn New Yorkese.)
In the article, CEO Elop explains that he's irritated with himself. "Clearly, we are disappointed with our performance," he said, barely able to see for the tears flooding his eyes and running down his cheeks. Most people thought the tears were over Nokia's performance, but those in the know realize it is part of separation anxiety. Elop is a child of Microsoft's (he used to work for them), and it is only natural for him to feel upset now that he is living with his other parent, Nokia. It's also no wonder that he wants his new parent Nokia to date his other parent, Microsoft, even though Microsoft rides a broom and wears a peaked hat. All it will take is a little marketing to patch things together and everything will be alright.
In fact, Nokia's marketing department is on the job right now. They have purchased all the rights to the movie The Ten Commandments, and will digitally insert CEO Elop into the role of Moses. He will be shown holding a Lumina cellphone instead of stone tablets. They are thinking of replacing the musical score with some of the Microsoft harmonica music that you currently hear when Windows starts. Microsoft and Nokia will be so proud of Elop, that they will marry immediately. Then the naysayers will open their eyes. My sources tell me that there is a large banner in the Nokia marketing department that says, "Brink of failing!? This will show that Bolaji!"
Okay, here's some preview music until Nokia can get the rights to Microsoft's harmonica music:
@Rich Krajewski, you show little sympathy for Nokia's plight :). Nokia's market situation clearly shows that the strategic partnership agreement between both Nokia and Microsoft might be short lived, if market appraisal fails to improve for Nokia I think.
What puzzles me is why Nokia adopted Windows operating system after deciding to kill Symbian OS. I suppose the amount of money and support Microsoft was willing to throw in convinced Nokia's management and perhaps the relationship CEO Elop had previously with Microsoft where he previously worked. Beyond that, it didn't make sense to go and support "an also ran" as you put it.
Symbian may have been problematic for Nokia in that it had been overtaken by Apple and Android but it still had a bigger market share than Windows OS. Finally, why couldn't Nokia simply insist on supporting at least two operating systems? Why reject Android? Google might have been convinced to also support Nokia although its decision to buy Motorola Mobility may have been a hurdle.
Finally, today, I don't even think about the operating system behind the phone when making a purchase. I don't care whether it's Android, Symbian or Windows (please note I didn't include Apple iOS). I just want the device to work well and be easy to use. That's all. I wouldn't care either whether it is a Motorola Mobility, Nokia or Samsung device. It doesn't matter that much anymore. I buy based on what I see (aesthetic) and ease of usage. Could Nokia managers be finally convinced they don't need this "we-are-Windows" slogan? They need to focus on hardware and let the OS market sort itself out.
As a fan of plain-vanilla phones, I'm not the best person to advise Nokia, but what I would say is there is not a lot of value in being an also-ran. In other words, Windows is not a differentiator in the cell-phone market. If Nokia is looking to break new ground, Windows is not the way to go. I'm not even sure the poplulation of Windows apps is a good reason to use the Windows OS. Symbian might have been the differentiator Nokia needs, but at this point we may never know.
Barbara, So, what's the survival strategy Nokia should be looking at? It may be too early to conclude but I am even more convinced Nokia is backing the wrong operating system in Windows OS.
I've never been a fan of Microsoft although I use its products every day. I simply haven't had the passion--yet--to convert to Apple or Android. I use my cell phone as a phone and that's it. But Android and Apple have clearly captured the imagination of a loyal set of users, and I agree, Nokia embracing Windows instead of promoting its own OS was a bad move in a market that thrives on differentiation.
If I were a phone maker, the last user I would go after is someone such as myself--someone who uses a phone to make and receive phone calls. There are a lot of markets in which being a replacement player is profitable, but mobile phones ain't one of them.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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