Nokia Bought Time, But That Clock Is Ticking

Jan 26, 2012
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Nokia Bought Time, But That Clock Is Ticking

$1.25 billion in losses would normally be a pretty dire way to end a quarter, but Nokia managed to muster just enough sugar for lemonade with more than a million sales of its first two Windows Phone handsets. After months of "we'll launch by the end of the year" promises, Elop & Co. came through with not one but two smartphones based on Microsoft's OS, turning that duo into a trio at CES 2012 earlier this month. As foundations go it's a solid start, but make no mistake: it only gets tougher from here.

To recap: Nokia and Microsoft shake hands and agree to make the beast with polycarbonate backs in February 2011, shelving MeeGo and confirming that the end is nigh for Symbian. The news prompts months of speculation and will-they-deliver-on-time controversy, until Nokia World 2011 in October and the unveil of the Lumia 800 and Lumia 710, only slightly blunted by Nokia reusing the industrial design for its de-facto flagship from the N9 several months before.

Fast forward to today, and Nokia has its all-important sales figures for the new Lumia devices - "well over 1m" in a little over two months of availability - and plenty of bad news too. Loses nearing a billion Euros, device sales down 29-percent, and Nokia making less on each smartphone it sells. Meanwhile the developing market Steven Elop had counted on providing the Symbian long-tail decided to rebuff the offer of cheap Nokia smartphones in favor of cheap Android ones instead.

The market has spoken, anyway: Nokia's share price is up over 4-percent today, though you'd still struggle to confuse it with that of Apple or Samsung. Windows Phone has an above-average track record of striking a chord among tech reviewers, and that - taken with the fact that many have a soft-spot for Nokia, and that the Lumia 800/900 are genuinely tactile, delightfully designed phones - has resulted in a shiver of positivity despite the diarrhea of cash.

It gets harder from here, though. To succeed at this point, Nokia had to show up with a device or two, get them onto the market before the end of 2011 so as to prove its new CEO could keep his word, and sell more than a handful. Three boxes ticked. But Nokia has plucked a lot of the low-hanging fruit now: the true "Nokia faithful" have gone out and grabbed their slice of Finnish history, and much of what's left is a market obsessed with Apple and Android.

It's also unfamiliar territory for the company. In the past, Nokia has had both unique hardware and software to rely on: after a few tentative - and quickly aborted - attempts to use Symbian by other firms, the Finns were pretty much left to their own devices. Now Nokia faces not only Android and iPhone, but a raft of other Windows Phone OEMs keen to make some return on the licensing and marketing budgets Microsoft has squeezed out of them. If it makes a success of Windows Phone, if all those color-block adverts promoting the platform take hold, there's no guarantee that the WIndows Phone shoppers leave the store with will necessarily have a Nokia logo on it.

[aquote]Apathy works in its favor[/aquote]

Apathy works in its favor; HTC, Samsung, LG and others are all distracted by their Android investment, whereas Nokia knows its future is dependent on Windows Phone clawing market share. The risk of failure is obviously higher, too.

Nokia's strength has always been in economy of scale: making lots of devices that use the same core hardware and driving down pricing that way. As its Windows Phone effort ramps up, there's a decent chance that will increase gross margin per handset. Still, it needs demand to justify producing warehouses full of Lumias, and that means a compelling range for the US, Europe and Far East markets where smartphone choice has us jaded, along with affordable models for developing markets that, crucially, won't cannibalize cheaper device sales too quickly.

Mobile World Congress is late next month, and Nokia is likely to have at least one more Windows Phone to show us. Shortly after that, the Lumia 900 will launch on AT&T and give the US its first decent taste of Nokia in some time. We've already said our piece on why AT&T should go against form and hammer down the sticker price of the LTE Lumia if it wants to stand a chance at getting traction.

Wielding a firehose of cash that's gushing like a sick snake isn't a great way to begin 2012, but Nokia has had it worse. This time last year, for instance, it had slumping profits and nothing compelling in its line-up whatsoever. The end is nowhere near in sight, but then again it never really is: there's always something shinier and cleverer just around the corner. If Nokia can grab even a minority share of that roller-coaster then its prospects are good.


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