Published: 16 April, 2012
Nokia has relied on its huge market share in low end phones to tide it over the difficult period of transition to WP7 smartphones. However, the rise of low cost Android devices is having an earlier than expected impact on that strategy, as seen in the company's Q1 profit warning, which centered on the decline of Symbian and featurephones in key emerging markets. That has led some analysts to call on the Finnish supplier to move away from the low end sector altogether, and follow rivals like Sony Mobile and HTC into a smartphone-only approach, prioritizing margin over volume.
Nokia last week warned that it would make an operating loss in the first quarter, rather than breaking even as previously predicted, citing weakness in important markets like India. Low end handset sales declined to €2.3bn from €3.4bn a year earlier, as volumes dropped to 71m units from 84.3m.
However, a shift away from featurephones would be a tough call for Nokia at this point. It will not have a fully rounded Windows Phone smartphone portfolio until late in the year and it will take at least that long to see whether the gamble on Microsoft will pay off. It would be a far bigger transition away from featurephones than for smaller competitors, because of the scale of Nokia's activities in that space, and a supply chain which has been engineered around volume. And its huge position in emerging markets, and particularly its leadership in India, will be important for the firm to address the important base of featurephone upgraders, once it launches low cost WP7 devices later in 2012.
Despite all that, some observers think the rise of low cost phonemakers, many from China, Taiwan and increasingly India, is too powerful a tide for Nokia to counter, and even among more conventionally structured vendors, it is squeezed by Samsung, which will overtake it as the world's largest handset provider in Q112, and has already seized its coveted crown in China. Adnaan Ahmad, an analyst at Berenberg Bank, spoke for many when he told Bloomberg: "Why not try to sell its mobile phone business and hence just remain a smart devices company?"
"They may sell their low end business to a Chinese maker, they may sell some IP assets -- we know there's a market for that, we know Microsoft is interested in that kind of thing," said Horace Dediu of Asymco. "Then they would essentially become a Motorola, which is a smartphone-only company that ended up getting acquired."