Nokia Lost In The Noise

Over on this side of the Atlantic, it can be pretty easy to ignore Nokia. They have, at best, a modest presence in the feature phone business, and are largely non-existant in the smartphone space. Outside of North America, though, it is a different story. Nokia is the biggest manufacturers of mobile phones of any kind, and Symbian used to rule the roost for smartphones, with a peak marketshare of around 65% globally. But, a big part of Nokia’s unit sales are feature phones: phones that make calls, probably have a camera and some basic texting features. Some have the ability to browse the web and such, but web traffic studies show that less than 1% of all mobile web traffic comes from feature phones. Feature phone sales have slowed some, as smartphones have gained more and more in the space. Apple, with 2 different models, is now one of the top 5 makers of handsets of any kind. Samsung and HTC, two who are in or near the top 5, continue to see increases in unit sales, a lot of those smartphones.

Nokia is in a tough spot. They are getting less revenue, and far less profit, from either feature phones or smartphones. They are working, in partnership with Microsoft, on a Windows Phone 7 device, due out later this year or early next. In the mean time, though, they continue to plummet in the smartphone market. To stem the tide of red ink, Nokia announced today that they are going to layoff 3,500 people. They are also closing or reorganizing some of their manufacturing plants as part of this step. But, you know they are in trouble when Apple’s profit from iPhones is greater than Nokia’s revenue from handsets. Symbian is the #3 smartphone operating system after iOS and Android, and is falling into the clutches of another declining product, Blackberry. Needless to say, things are looking bleak for the company from Espoo.

Nokia is expecting a lot out of the Microsoft partnership, as is Microsoft. Nokia is counting on WP7 to keep it relevant and competitive. Microsoft is counting on Nokia to give WP7 a shot in the arm. The problem for Nokia is that they’ve hitched their cart to what appears to be a falling star. Windows Phone 7 has failed to gain any kind of meaningful marketshare. They are mired back around 5-6% of the global market, which is actually below their peak of somewhere near 8% from over a year ago. Windows Phone 7 has seen quarter-over-quarter reductions in unit sales and marketshare, including declines during key selling seasons like back-to-school and the Black Friday/Christmas period in the US. All is not doom and gloom, though. The WindowsPhone Marketplace continues to see new apps arrive all the time, and they have an inventory that is measured in tens of thousands. With apps and some content, at least WP7 has some kind of ecosystem behind it. That lack of an ecosystem is what killed WebOS and is hurting Blackberry and Playbook.

The problem for Nokia and Microsoft is that WP7 just isn’t at the top of consumers minds, and trying to dislodge the iOS and Android juggernauts is a daunting task. There is a gaping hole in the WP7 story: tablets. Microsoft has insisted, vehemently, that a tablet must (absolutely, without question) run some variant of Windows, and not the mobile operating system. Their motivation for this is simple: the onslaught of tablets is eroding the presence of Windows a the low end of the personal computing space, and (with iPad) is starting to intrude into the enterprise end-user space as well. The iPad has started to impact netbook and low-end notebook sales, both of which were an easy way to get people into the Windows world. By trying to encourage Windows, vs. Windows Phone, it supposedly keeps Windows “relevant” in the personal computing space.

So, what happens to Nokia? That’s an unknown right now. Nokia’s WP7 devices could be the thing both Nokia and Microsoft need to resurrect their flagging fortunes in the smartphone market. Nokia still has tremendous brand recognition, and they have incentives to make WP7 work, given they’ve put almost all their eggs into that basket. On the other hand, either Nokia and WP7 (or both) could be the anchor that just drags them both under. It is still early, but Nokia’s offering could end up being too little too late for both Nokia and WP7. Both need some good news, particularly Nokia, but nothing much encouraging has been heard. Nokia could be the first mobile device giant to truly fall down permanently.