Mobile and wireless communication: Nokia's fate is no longer in its own hands

July 2013

Lawrence Lundy, Consultant, Information & Communication Technologies

“50 Years of Growth, Innovation & Leadership”

Mobile & Wireless CommunicationNokia's Fate Is No Longer In Its Own Hands

A Shortened ICT Beat

Nokia's Fate Is No Longer In Its Own HandsA Shortened ICT Beat

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Our ICT Beats are reactive articles, taking in key industry developments as and when they

occur. Browse through some of the current happenings in this shortened extract.

A Long Road To Recovery

From the look of Nokia's quarter two 2013 earnings, it is clear that the company still has a

long way to go on its road to recovery.

Nokia reported sales of €5.69 billion ($7.46 billion) for the three months to the end of June,

down 24 percent from the same period in 2012. The company sold 53.7 million mobile phones

during the quarter, down 27 percent from last year. Despite the difficult position, sales of

Lumia handsets are an undoubted bright spot for the company. Nokia sold 7.4 million Lumia

smartphones worldwide in quarter two, a year-on-year rise of 32 percent. North American

device sales improved from the previous quarter, but only reached 500,000 shipped in total

during quarter two, a 16 percent decrease year-on-year.

Revenues are expected to rise in quarter three, the first full quarter in which Nokia will have

a range of Lumia Windows Phones available to Americans, with the 928 on Verizon, the 925

on T-Mobile, and the new flagship 1020 on AT&T.

One slipping market for Nokia concerns feature phones (non-smart); net sales fell 39 percent

year-on-year from €2.29 billion in quarter two 2012 to €1.40 billion in quarter two 2013. The

drop is a result of a shrinking feature phone market and customers moving from feature

phones to low-cost Android smartphones from Chinese manufacturers such as ZTE and

Huawei. As customers in the low-end of the market move from feature phones to low-cost

smartphones, especially in emerging markets, Nokia will be hoping the recently launched Asha

501 and Lumia 625 handsets will be able to take advantage of this shift.

The Battle To Be The Third Ecosystem

With shrinking sales in the feature phone market, traditionally a key market for Nokia, the

success of Windows-powered Lumia devices is crucial. In November 2011, when the Lumia

range running Windows was launched, BlackBerry was the established third mobile

ecosystem. Earlier this year, Windows Phone overtook BlackBerry in global market share to

place as the number three platform for the first time. In fact, Nokia sold more Windows

Phones last quarter than BlackBerry sold phones in general. Last year, though, BlackBerry sold

almost two phones for every one Lumia Nokia sold.

Whilst BlackBerry has still to see the effect on sales of the keyboard driven Q10 and Q5

devices, at this point, it is fair to say that Windows Phone is now the third ecosystem. This

success, in large part, is due to Nokia’s Lumia range that accounts for 80 percent of all

Windows Phones sold.

Nokia's Fate Is No Longer In Its Own HandsA Shortened ICT Beat

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Windows Phones market share is increasing primarily because Blackberry’s share is

decreasing; if Microsoft's OS is really going to succeed, it needs to capture market share from

Android and Apple. Even with the relative success of the Lumia devices and Windows Phone,

any discussion about Nokia is bound to the question: where would Nokia be now if it had

gone with Android instead of Microsoft?

In late 2010, Nokia abandoned their proprietary Symbian OS and began looking for a new

operating system. It was widely reported that Nokia executives discussed adopting the

Android operating system with Google. However, in the end, Nokia went with Microsoft and

its fledgling Windows Phone operating system. Nokia, for better or for worse, tied its future

to Microsoft’s.

Winter Is Coming: The War Of Ecosystems

In choosing Windows Phone at their operating system, Nokia secured their future in the

short-term. But they now face two very different threats: first, its reliance on Windows

Phone and Microsoft, and second, technology paradigm shift from devices to ecosystems.

These threats are explored in depth in the full ICT Beat.

Where Do We Go From Here?

Nokia’s decision to partner with Microsoft in early 2011 was certainly the correct choice at

the time. Now, with the relative success of the Windows Phone, other OEMs will look to use

the platform and leave Nokia without a unique selling point (USP) for the Lumia range.

Ultimately, Nokia needs to differentiate beyond cameras, as with the recent Lumia 1020, by

offering the Lumia range with other platforms such as Ubuntu, Firefox, and Sailfish.

The more difficult challenge for Nokia is to remain relevant in an era in which the

ecosystem—rather than the device—increasingly becomes the most important choice for the

customer. That said, a variety of devices that run on the same platform (wearables, TVs,

mobiles, and tablets) and the benefits of having these devices connect, share, and sync will

become the customer’s main focus. A customer with an iWatch, for instance, is unlikely to buy

a Nokia Lumia; equally, a customer with an Android tablet will want an Android phone.

Nokia is reliant on Microsoft to build a compelling ecosystem around Windows. Its failure

with the Surface Pro and RT does not bode well. In turn, Microsoft will need products in

every category in order to make the ecosystem compelling to developers and customers. This

means it will need to improve its tablet offering and not miss out on the wearable revolution.

On the upside, Nokia’s declining fortunes have never had anything to do with its hardware; it

has always made great quality devices. So, there is promise for Nokia in working with

Microsoft and other platform manufacturers to build tablets and wearables.

Nokia’s fate is no longer in its own hands. It has to balance two conflicting risks. First, it relies

on Microsoft/Windows Phone but will need to offer other non-Windows Phone and non-

Android platforms on its devices. Second, its smartphones will only be as useful as the

ecosystem of which it is a part. Therefore, Nokia will need to ensure the Windows ecosystem

is successful, and it can do this by creating compelling products for the tablet and wearable

categories.

Shutting down Symbian may have been the right decision in the short term, but it left Nokia

without software in an era where, as Marc Andreessen, co-founder and general partner of

Silicon Valley venture capital firm Andreessen Horowitz famously said, “software is eating the

world.” In a future where ecosystems will determine market success, it is difficult to see a

how a product-orientated company like Nokia can survive.

To gain access to the full ICT Beat, and more industry analysis contact:

Lawrence Lundy

Consultant

Information & Communication Technologies

Frost & Sullivan

Telephone: +44 20 7343 8322

Email: [email protected]

Twitter: https://twitter.com/lawrencelundy

LinkedIN: http://uk.linkedin.com/in/lawrencelundy

Nokia's Fate Is No Longer In Its Own HandsA Shortened ICT Beat

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