Nokia’s transition

It means sell your stock while you still can

Nokia Logo 63x40 Nokia’s transitionNokia (NYSE:NOK) issued a press release that dropped the stock down 17% and generated a lot of buzz in the market.  Essentially it said that their sales estimates for Q2, ranging between 6 and 6.6 billion Euros are no longer valid, same for their 6%-9% operating margins. The situation is so dire that the company “believes it is no longer appropriate to provide annual targets for 2011.”

The company cites three factors as the reasons for this outlook:

1) The competitive dynamics and market trends across multiple price categories, particularly in China and Europe

2) A product mix shift towards devices with lower average selling prices and lower gross margins
3) Pricing tactics by Nokia and certain competitors.

Nice language if we translate it we get:

Apple killed us in the top market and Android is doing the same in the medium-high segment in Europe, and we have a problem in the bottom market in China.  In all segments our phones are perceived as cheap, low value so we have to discount heavily.  And, we expect Android phones to eat our market share even faster and do not expect good news from emerging markets where we have a large current user base.

Nokia lost the Smartphone bandwagon when iPhone got to the market. The iPhone changed the concept of how a Smartphone should be. Android smartphones followed the same line but with a more open business model. Even Microsoft realised that they needed something different and they went to the drawing board and came up with WP7. But Nokia did not want to give up Symbian and did not want to change what Symbian was. The result is that while Nokia’s phones are nice piece of hardware, they lack the proper software to compete with the army of Android phones and the iPhone.

When they woke up Apple was firmly established and Android was gaining traction, so they had to run to the only orphan player with deep pockets, Microsoft. The partnership was meant to give WP7 one quarter of the smartphone market. As this is not going to happen, we might see further moves from Microsoft to make up for this loss.

The China threat is far worse to Nokia than anything else, as it is a fast growing market that Nokia still retains a significant share. There,  ZTE and Huawei are both poised to go the WP7 route for smartphones, so Nokia MUST have a very good execution in their transition to WP7 or else will be killed there too. It will be a tough environment for Nokia.

In any case, Nokia lost. The company that a few years ago had a complete platform in the mobile market and was supposed to compete with Apple, Microsoft, RIM and Palm will be relegated to a mere hardware manufacturer, and one that today is lagging far behind in delivering smartphones. The transition will result in a less relevant or in a irrelevant company.S|A

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 Nokia’s transition

Marcelo Tavares

 Nokia’s transition

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