Nokia's Best-Case Scenario: Grim
Nokia’s transition to Microsoft (MSFT) Windows Phone 7 software will cost Nokia (NOK)far more market share and profits than it will ever gain by having dumped its Symbian operating system. So says Tomi Ahonen, a former Nokia employee turned analyst/blogger on mobile matters. In an analysis that follows last week’s news of Nokia’s tumbling market share, sales, and revenues, Ahonen goes on to discuss Nokia’s performance prior to the company’s February announcement of its partnership with Microsoft and sets expectations through 2013.
Until Stephen Elop left Microsoft to run Nokia in September 2010, Ahonen appeared convinced that Nokia’s Symbian strategy would eventually pay off—a scenario I disagreed with. The company’s hardware had always impressed me, but in my opinion Nokia always fell short in user experience and software. This held true in my review of the Nokia N8 handset. Others disagreed. More Symbian-powered smartphones have sold than those on any other platform, at least until last quarter, when Apple (AAPL) and Samsung (005930:KS)both outsold Nokia in smartphones. HTC (2498:TT) is fast gaining market share, too, thanks to its early adoption of Google (GOOG) Android.
Ahonen is still justifying his early faith in the Symbian strategy, saying in his blog that the platform had improved enough to help boost sales: “Then came the new Symbian S^S on several phones, led by the new flagship phone N8 which set a Nokia record for fastest sales in a quarter. All declining trends were turned into growth—this tells us the market loved Nokia’s new smartphones on the new Symbian S^S operating system and this is absolute proof that Nokia was on a comeback. Whatever you may have thought of Symbian prior to Q4 of 2010 became obsolete. Nokia had indeed on its hands a true hit series of phones and a hit operating system, with the N8 setting internal Nokia records for new phone sales. Look at the facts.”
Smartphone Tide Lifted Nokia
I won’t argue with the numbers that Ahonen lays out. I will point out that he’s missing a key figure: overall market growth for smartphone sales. “A rising tide will lift all boats” is a common phrase that applies here; even leaky boats can elevate. Smartphone adoption is increasing around the world, so that even less-competitive market players can see gains. Nokia’s smartphone sales in the final quarter of 2010 rose 7 percent, partially for this reason. But growth in the overall market was far greater: IDC suggests that year-over-year growth in smartphone sales for all vendors was up 87.2 percent; Nokia accounted for the least growth among the top five handset makers.
But Nokia’s Symbian past has little to with its Microsoft Windows Phone 7 future. Ahonen’s model—meant to be simple—suggests that in a best-case scenario, every WP7 phone Nokia sells will be offset by the loss of a Symbian sale. Essentially, the platform transition will be an even sales swap. By the end of 2013, Nokia will have a far lower market share than it has now.
“So taking the very best case of 2012,” Ahonen writes, “using the best ramp-up ever and then using the best case of growth in mass-market scale, we get Nokia’s Microsoft Windows Phone 7 based smartphones—the very, very best-case scenario—to hit 20.3 million smartphones not at the end of 2011, not at the end of 2012, but the end of 2013. By that time, Nokia’s smartphone market share will be at … 8 percent.”
For Comfort, Don’t Look at RIM
The 20.3 million smartphone sales 10 quarters from now seems low to me for two reasons. One is the growing smartphone market to which I referred earlier; to some degree, it will help all smartphone platforms. The other is the timing, because the smartphone market is changing so quickly. If you don’t think so, look at Research In Motion (RIMM), which is working through a transition of its own: The company is changing fast and as a result, faces declining sales. RIM just reduced its workforce by 10 percent. When you’re in a fast-growing market and have to eliminate jobs, you’re either not competitive, not profitable, or both.
In the end, Ahonen blames Elop’s decisionmaking, saying: “Before Stephen Elop killed Symbian, Nokia’s smartphone market share was 29 percent. Nokia towered over its rivals and was growing smartphone sales with highly desirable new smartphones. Today, just five months after his ridiculously-timed announcement of Microsoft, Nokia’s smartphone market share is down to 15 percent and collapsing.”
I agree with Ahonen that Nokia’s market share is collapsing; we seen evidence. By publicly stating that Symbian was a dead end, Elop may have shaken an already fragile public perception. But I think Elop made the right call. Had Symbian continued along a path where it underwhelmed, Nokia would have run the risk of having a negative vibe transfer to its new Microsoft-powered phones. In fact, I wonder if Microsoft made this call as part of the overall deal, simply to avoid a scenario of contagion.
Although my reasoning differs from Ahonen’s, I think we can both agree: No matter how sad it is to see the mighty fall, Nokia’s best days are behind it.
Also from GigaOM:
A Global Mobile Handsets Platform Forecast (2011–2015) (subscription required)