Apps will be vital to change Nokia's fortunes

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Apps will be vital to change Nokia's fortunes

Finnish vendor's shares slide on downgraded analyst forecast for Lumia; it must build up app store to crack US next year

By CAROLINE GABRIEL

Published: 23 November, 2011

READ MORE: Nokia | App Store | Handset | Windows Phone

As Nokia shares slipped on a negative analyst report, the firm talked up strong initial sales of its Lumia WP7 range in the UK. But CEO Stephen Elop admitted it will be essential to build up the applications base, especially to make an impact on the US market when the company launches there in the new year - and that will mean ramping volumes significantly to attract developers.

Analysts disagree on whether this is likely to happen during Nokia's first month in the WP7 space. A study by Distimo, while pointing out the huge difference in size between the WP7 store and Apple's App Store, believes there is major potential for the platform in 2012, especially because of Nokia's entry. But a research note from James Faucette at Pacific Crest Securities predicts that Nokia may sell only 500,000 units of the two Lumia models in the current quarter, a downbeat forecast that sent the vendor's share price down by 6% at one point.

Faucette downgraded his previous shipments estimate from 2m units to 1m, with sales to end users just half of that. "With no breakthrough innovation, we believe Nokia's new phones are unlikely to get traction in a highly concentrated high end," he wrote.

The Lumia 800 and 710 shipped in selected markets on November 16, priced at €420 and €270 respectively (a price tag which at least one major carrier, O2 UK, found too steep for an untried handset). Nokia said this week that initial sales in Europe had been strong, especially in the UK, where pre-orders had been the highest in its history.

But Faucette thinks the OEM will struggle to convert high operator interest into end user demand. "The market has somewhat elevated expectations for Nokia and its Lumia launch, particularly given the strong backing from carriers that the company is garnering," he wrote. "If Nokia is unable to successfully regain high end market share in the next several quarters, the stock could return to what we consider a fair value of roughly €4."

As Elop pointed out, the success of Lumia, especially in less Nokia-aware markets like north America, will be heavily reliant on a strong applications offering. Distimo marked the occasion of the first birthday of WP7 Marketplace by pointing to significant opportunities for the platform, especially because many carriers are looking for a 'third way' alongside iOS and Android - a major source of hope for Nokia and Microsoft.

Analytics firm Distimo's study shows that Marketplace is experiencing strong monthly growth in free and paid-for apps. The store is now open in 35 countries, but remains most popular in the US, where it sees 101,000 free and 20,000 paid-for downloads a day - another spark of hope for Nokia as it tries to penetrate the hostile US fortress. And it has further international expansion to do - half of its apps are only available in the original 17 countries where the shopfront opened. Nokia's influence should be significant in accelerating global roll-out, since it has always specialized in highly localized apps and content.

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