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


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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.

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

  1. 1. July 2013 Lawrence Lundy, Consultant, Information & Communication Technologies “50 Years of Growth, Innovation & Leadership” Mobile & Wireless Communication Nokia's Fate Is No Longer In Its Own Hands A Shortened ICT Beat
  2. 2. Nokia's Fate Is No Longer In Its Own Hands A Shortened ICT Beat © 2013 Frost & Sullivan Page 2 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.
  3. 3. Nokia's Fate Is No Longer In Its Own Hands A Shortened ICT Beat © 2013 Frost & Sullivan Page 3 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.
  4. 4. 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: Twitter: LinkedIN: Nokia's Fate Is No Longer In Its Own Hands A Shortened ICT Beat About Frost & Sullivan Frost & Sullivan, the Growth Partnership Company, works in collaboration with clients to leverage visionary innovation that addresses the global challenges and related growth opportunities that will make or break today’s market participants. For more than 50 years, we have been developing growth strategies for the Global 1000, emerging businesses, the public sector and the investment community. Is your organisation prepared for the next profound wave of industry convergence, disruptive technologies, increasing competitive intensity, Mega Trends, breakthrough best practices, changing customer dynamics and emerging economies? Contact Us: Start the discussion CONTACT US +44 (0) 20 7343 8383 • •