Yesterday I did my last look at the past, about how the decision was made by Nokia to terminate its smartphone OS platforms etc. That is all water under the bridge. There is no going back. Time to look into the future. And while my instant reaction on Twitter may have been a bit hasty and negative about Nokia-Microsoft partnership for smartphones, I have now done my first full, comprehensive analysis of its near term potential. And I am sorry to tell you, I was too optimistic over the weekend. It is far worse. I will go through every relevant part and analyze it. So lets look at 2011 and beyond, for Nokisoft Microkia
Even Nokia's CEO says this will be a difficult year of adjusting to the new world, for Nokia. I have tried to think what all will be impacted and how. This is a VERY long article, detailed, mostly of the Nokia side to the equation. I will examine dumbphones and smartphones and networks. I will examine customers, sales reps, app stores, operating systems, the developers and the ecosystem. I will examine costs, revenues, average sales prices and profits. And market shares. And I will give a view into 2011 and 2012 for the Microkia Nokisoft partnership. It cannot be a short analysis, the issues are so complex. It also cannot be superficial. So be warned. This blog article is one of the longest I've written, it runs well in excess of 10,000 words. And I know not all will want to read through it all. So let me give you the top-line view here. This is how I see the Nokia smartphone market shares, average sales prices and revenues develop in this year 2011.
Quarter . . . Market Share . . . Unit Sales . . . . ASP . . . . . Total Revenues of Smartphones
Q1 2011 . . 28% . . . . . . . . . . 29 M . . . . . . . . 146 Euro . . 4.3B Euro
Q2 2011 . . 21% . . . . . . . . . . 25 M . . . . . . . . 136 Euro . . 3.3B Euro
Q3 2011 . . 16% . . . . . . . . . . 21 M . . . . . . . . 126 Euro . . 2.6B Euro
Q4 2011. . 12% . . . . . . . . . . 17 M . . . . . . . . 116 Euro . . 2.0B Euro
The last quarter before Stephen Elop announed his Microsoft partership, Nokia had 28% market share in smartphones and smartphones had a average sales price of 156 Euros (about 210 US dollars) and Nokia generated 4.4 Billion Euros of revenues in its smartphone unit - which is the most profitable part of Nokia's three big divisions.
The market share is certain to decline drastically. The unit sales will decline. The Average sales prices will decline probably more than what I have modelled in the above. (please read the full blog to understand how I arrived at these numbers - and please understand, this is based on a real case model - using Microsoft's performance in the past - and this is the 'best case' scenario!). The total revenues of the smartphone unit will shrink to less than half what they were. In the process, Nokia's smartphone unit will go from generating profits, to generating losses by the summer, and all of Nokia will be cast into making losses before the end of the year.
There is no silver lining to this partnership for this year. Microsoft will not gain a strong healthy profitable partner with one third of the smartphone market. The best-case scenario has Nokia limping in badly wounded, with barely more than one tenth of the market and disloyal customers, a wrecked ecosystem and bleeding from all the battles, making losses and unable to capitalize on Microsoft's supposedly excellent OS. Even then, Microsoft will be better off, as this wounded Nokia is far stronger than what Microsoft has managed on its own devices in the past. So its all pain for Nokia, all gain for Microsoft.
In the blog I explain what happens to premium smartphones, enterprise phones, cheap dumbphones, etc etc etc. If you want to know why I believe the above is the 'best case' scenario, please read my full blog - but go get a cup of coffee first. This will take some time to get through (honestly, the story runs over 10,000 words - more than a standard chapter in one of my books). And for those who don't care for the details, I hope to come back tomorrrow with the 'competitor analysis' of this partnership - who gains and how much. You may be surprised..
(this is the longer part of the blog..)
MUCH WON'T CHANGE
First about what won't change. We are looking at two companies, whose combined value is about 120 Billion dollars in annual sales. Most of that is not impacted in any way by this alliance. Almost all of Microsoft's current revenue-generating business is with the PC software side like Windows, Office Suite and the Xbox etc. These are all unchanged. They don't significantly gain nor lose out of the partnership - before you say "But but but E-Series" - yes, E-Series. E-Series Symbian phones have already an ongoing partnership between Nokia and Microsoft - which was led on Microsoft's side - yes, by a certain Stephen Elop, from 2009. This strategic partnership was so underwhelmingly successful, that I don't remember any victories of the Office Suite driven Symbian phones. I do remember successes reported by Apple iPhone in the enterprise space, and massive market lead by RIM ie Blackberry in the enterprise space. So, considering the great success of building Nokia sales using Microsoft ecosystems and highly popular software - haha - perhaps Office Suite success on E-Series Symbian phones is a sign of how magnificent this latest Stephen Elop -led venture will be.. (Tomi, play nice!)
Ok, lets look at what else doesn't change from Nokia's side. NSN NokiaSiemens Networks is pretty much untouched. That seems odd to me. In the latest Quarter, NSN delivered almost a third of Nokia's revenues, and was only barely profitable (operating margin at only 3.7% vs 11.3% for handsets) yet CEO Stephen Elop makes big organizational changes at handsets (that was the far better-performing unit) and no changes at all in the NSN unit. Am I the only one who is reading between the lines that Stephen Elop doesn't care at all about his worst-performing unit? I see it as Elop being ready to get rid of Networks? But at least, we found out now that Stephen Elop is no fan of open discussions even with his strategic partners - as he apparently called Nokia's 'strategic partner' Intel only hours before he announced the end of Nokia's support of MeeGo. Nice. But yeah, those working for NSN should be warned.. But the point is, that the Microsoft partnership will not change anything at NSN. So expect NSN to linger in the very low single-digits in profitability (if that) facing ever tougher competition especially from Huawei of China.
So Mr Stephen Elop brings in Microsoft as partner, and sets his 'platforms on fire' but a third of Nokia's revenues are not touched by that change. The Networks unit needs other remedies and results but new CEO Stephen Elop seems ignorant of the unit and doesn't seem to care to 'fix' any of it. This is the weakest unit in profitability - if Elop was fixing NSN, it would potentially have the biggest gain to Nokia's bottom line. But rather than fix what is really ailing the company, he spent his first half year bringing in a replacement OS platform to something many felt was not broken and which in any case cannot bring any help to Nokia for another year. But lets not look at smartphones and ecosystems quite yet. Lets first examine a second 'third' of Nokia revenues.
The Microsoft alliance really doesn't impact the dumbphones unit which accounted for roughly a third of Nokia's revenues. The competition is getting ever more rough, especially from Asian makers led by China - as Elop famously said in his 'Burning Platforms' memo (although those smartphone platforms do not relate to the cheap phones). The relevant point is - that even after we get Phone 7 handsets - they will not be able to run on the low spec low cost 'Africa phones' on Phone 7 that the dumbphone unit is shipping and where the battle is against low-cost providers from Asia. Stephen Elop's strategy does nothing to address the troubled dumphones unit.
But there is a perception battle at this price point, and there, Nokia will be seen to be retreating - very badly. This is at the top of the price range. A few years ago the most expensive phones in the stores were mostly Nokia branded. Then Nokia cut its product lines and reduced the number of models - all while the competition produced far more top-end phones (iPhones, Samsung Galaxies, SonyEricsson Xperias, Blackberry Bolds etc). So Nokia, which once had a perception of the leading premium price phone - seems to be losing that edge. So those customers who really can't afford a Nokia smartphone, but may have been thinking aspirationally, that they'd like to own one, some day, will increasingly feel that Nokia is not a phone brand worth having - that it doesn't offer much in the premium phones (not competitive phones for sure). So the battle that Nokia is now abandoning in 2011 while it re-organizes to Phone 7 - will hit the loyalty of lower price phones, much like what would happen to BMW if it stopped making a 7 Series Beemer, or to Mercedes Benz if they stopped making the S Series Benz etc. And this means that in the eyes of the common customer, Nokia goes from being seen as a premium brand (which also sells low-cost phones) to a discount bargain brand.
This is not good for loyalty in the dumbphones segment and will cause far more churn, and this will hurt Nokia almost exactly like has happened in North America, where Nokia still sells its basic phones, but has lost the support of all carriers to sell premium Nokia phones. I do not foresee a 'collapse' of Nokia basic phone market share - but I do see a decline. That means also - that Nokia basic phones will need more marketing support - and with less demand by consumers - means Nokia can command less of a price premium at this price point against the Chinese cheap phones - and Nokia profitability in the low-cost basic phones will be hurt. The average sales prices will come down, the marketing costs go up, the overall profitability of handsets is going to be damaged. Not catastrophically, but it will be hurt. That battle is tight, Nokia is sieged, it will not get any better.
So while Stephen Elop the CEO brings Microsoft in as his partner, and pours more gasoline on the 'platforms on fire' the damage of his decision impacts that part of Nokia where a second third of revenues is generated. And the announced Microsoft OS change will only damage Nokia's reputation in this segment, any possible upside would be seen in the year 2012 at the earliest and Nokia will take market share losses in the mean time which are almost impossible to recoup from lower-cost makers - especially when we look at some of those rivals. Note that even in 2012, this new Microsoft strategy will not help Nokia selling its dumbphones. There is only a downside to dumbphones, no upside. Nokia is besieged by makers of low-cost phones like ZTE and Huawei of China, and the South Korean makers Samsung and LG who aggressively push to lower-cost phones. What are ZTE and Huawei doing? They are migrating to smartphones, so their brand image is strongly improving in this price segment. What do Samsung and LG have? Both offer low-cost smartphones - especially Samsung with the bada OS platform. So these rivals are ready to pick up an customers willing to go from featurephones to low-cost smarpthones. This is all bad for Nokia dumbphones.
The dumbphones unit will need major effort by Nokia management. That is not helped in any way by the Microsoft alliance. To fix Nokia's troubles in the dumbphones unit, will take other remedies and results, most of which is plain old-fashioned marketing: product design, distribution channel management, marketing promotion and pricing. What I wrote about in my 'how to fix Nokia' blog about a week ago. So Nokia should do SMS-optimized T-Series of phones, do plenty of models, colors, etc. But this all seems hollow if the top of the line doesn't shine. If there aren't ultra-desirable superphones at the top of the price pyramid, why the colorful cheerful cheap phones - now the idea of spreading the model line - at only the bottom of the pyramid - will work to a large degree to reinforce the feeling, that Nokia has turned into a bargain-basement brand. It only makes ultra-cheap (but cheerful, colorful) models. Even good marketing ideas will now suffer in this price level if Nokia's premium side is crippled.
The Microsoft Alliance does nothing to address any of these (ever), except probably some of the stunned and shocked internal staff issues will impact also the dumbphone handsets unit, from sales to R&D. So the Phone 7 OS won't be suitable for ultra-low cost handsets (will Elop sell that unit as well?) and where Symbian was supposed to be the OS for cheap phones, that unit is now being shut down, so it won't be viable for the long-term migration of Nokia low-cost phones to smartphones. Compare this with Samsung who has a similarly capable low-cost phones optimized OS, bada, which will work on phones of lower specifications. Samsung can continue to do both the premium phones on Android and the mass market low-cost phones on bada. Expect that the whole 'featurephone' price segment will be gobbled up by Samsung (where it should have been a fair fight between bada and Symbian). Meanwhile in Nokia product development, there will be plenty of feelings of broken promises and mistrust of management, which will not help in creating a common 'winning' attitude inside Nokia. The threatened layoffs will certainly make those emotions worse, not better and uncertainty about it also only worsens matters not improves them.
THE SMARTPHONE SIDE IS CHANGED - TOTALLY
For both companies, their smartphone side is altered radically by this alliance. And please remember, in very rough terms, if the partnership is worth 120 Billion dollars, what is at stake is worth about 15 Billion dollars and almost every penny of that is on the Nokia side of the fence. Nokia's smartphones business will be shattered beyond any recogniztion by this partnership. Not so much as an oilrig platform on fire. Its like an oilrig that was safe and sound, set alight by an arsonist, who first sprayed the whole oilrig with gasoline, and then disabled all fire extinguishers before starting not one fire, but dozens of fires by explosives - while everybody sleeps.. That kind of platform fire is what we are now witnessing, haha.
So lets start with Nokia. Clearly, nobody doubts that now Symbian sales will be damaged, until the new Microsoft Phone 7 handsets come to the market. (The development cycle of totally new phones takes about 18 months from clean table to first phones in the store). How quickly can we expect the first new phones, realistically not until Q1 or Q2 of 2012, depending on how early the work started on them late last year.. Remember that its more difficult to use the Phone 7 OS on Nokia phones, as there are plenty of abilities that Nokia smartphones used to support - and designers would automatically factor in, features that Phone 7 does not (yet) support, like multitasking, cut-and-paste, access to the camera etc. So for example, an application like Layar's Augmented Reality browser could not work on Phone 7 as it currently exists.
Nokia will sell Symbian for another 150 million handsets - these will not be the most impressive top-line Nokia phones (so don't expect Communicators or fancy phone styles like the iconic N93 contortionist-phone etc), where there will be new Symbian phones developed and released this year, those will tend to be at the low end, with perhaps some mid-priced Symbian phones. So the stores will stock 'old' Nokia premium phones - the N8 will seem quite outdated by the Summer of 2011 when the new iPhone 5 is out, and SonyEricsson's new Xperia phones will be out, like the Playstation phone, and Samsung's updated Galaxy S series phones ship, etc. What Nokia would need to fight for the top-end of the price pyramid, is very competitive premium phones (after last year's N8, they would now need a fancy cool new N9, etc) but Nokia cannot waste the development costs for premium phones that won't be accepted by the consumer due to the obsolete OS, Symbian. They cannot give us premium phones to try to fight with the iPhone - because those won't be credible until they come with Nokia's new OS, "that one which is from Microsoft."
CUSTOMERS OF SMARTPHONES
Then lets look at the customer needs. The sales will hurt the higher-end phones more than lower-end. Why? Because a consumer who wants a top-end Nokia phone (like N8, E7 buyers) would be far more aware of the 'smartphone' and app opportunities and more likely to understand and ask for those. That buyer may already know of the issues with Nokia Symbian being shut down, and a new Microsoft OS being developed - and will be asking the salespeople is that new Nokia model equipped with the new Microsoft operating system. Understand, for most premium phone buyers (about 5% - 10% of all new phone buyers) - most of these will have a personal computer, so they 'know' Microsoft's Windows quite well. They will 'learn' the concept, that there will be a Microsoft ('Windows') based operating system on new Nokia phones - far more rapidly than they learned the name of 'Sintium, Symbolim, Sambian, what is the Nokia OS' haha, or even worse, MeeGo-that-recently-was-Maemo...
My point is, that with Symbian (and far more with MeeGo) there was very much consumer apathy and lack of awareness of the OS. So just if Symbian vanishes, that won't really highlight the issue. But for customers who can afford premium phones costing over 300 dollars, most of those customers also have a PC or use one at work or at the university and will tend to know Microsoft as the 'software of computers'. So they don't need to be reminded many times, that the 'new, soon-to-come' Nokia smartphones will get that Microsoft software. (Lets put aside the consumer impressions of the reliability and costs of Microsoft software, haha, lets assume this change is 'neutral' and Nokia's brand itself is not damaged if Nokia phones start to run Microsoft software).
But in the minds of the premium buyer, the issue will be quickly learned, and they also quickly learn that anything other than the Microsoft system, will be obsolete for Nokia. Thus the buyer of high-end phones would be more impacted by the pending end of Symbian, than low-price buyers for whom the features of the phone have probably been more relevant than the 'smartphone' features and abilities. See what this means for Nokia in this year - it means that where Nokia smartphone sales will be damaged - that damage is far bigger at the top end, simply from consumer demand (ignoring the fact, that there won't be major new phones at the top of the range, further damaging this price segment).
And even where some new Symbian phones will appear, there will be loyal Nokia customers, who will want to wait for next Nokia on the newer OS. And worse - the replacement cycle for mobile phones globally is about 18 months - far faster than that in most advanced smartphone markets of the Industrialized world - so those existing - loyal - Nokia customers who currently own a Symbian based phone - will have enough time to qualify for the next upgrade/replacement phone - and come to the store - learn that Nokia's Symbian phones will become obsolete - and many will take their first step away from Nokia to try an Android or iPhone or Blackberry etc. The loss to Nokia's loyal customers will be significant, because of the rapid replacement cycle - far faster than for example in the PC market, where a delay in say the Microsoft Windows operating system is not that catastrophic. It will be in smartphones.
ECOSYSTEM? TRY TOXISYSTEM
Then there is the app developer impact - Symbian developers now feel anything from an mere acknowledgement that the Symbian market opportunity will dimish (and the app opportunity to shift away to especially Android) all the way to betrayal where Nokia will be seen by some as going back on its word for example with Qt and the previously-promised migration path to MeeGo that now has vanished. What does this mean - Symbian was already before the most fragmented app environment and Symbian itself a slow, complex and difficult development environment. What developers were left, were there more out of loyalty to Nokia's valiant efforts than because of any real competitive benefits of Symbian. Now they can go. So any smart app developer will start to look elsewhere and at best, wait for Phone 7 based Nokia smarpthones. In the worst case, they figure that Android, iOS, bada and RIM have the reasonably large market shares, and won't even bother with Phone 7 until or unless it grows to 10% market share or more - something that certainly won't happen prior to Nokia offering full manufacturing support of Phone 7 phones (not just their first Phone 7 handset) at the earliest in mid-2012 and quite possibly not until 2013.
If you thought Symbian and Ovi were 'underperforming' as an ecosystem compared to iPhone App Store and Android - just watch Symbian and Ovi crash this year to obscurity. Nokia Ovi and Symbian based apps will linger in very modest numbers of apps, with the gap not closing to the leaders - but growing wider. The premium end Nokia phone owners will now start to shift to rival smartphone brands - so those who would be making many downloads - will start to exit the Ovi ecosystem - while the ones remaining will be in Emerging World markets and very low-cost price segments in the Industrialized World - those who tend not to have all-you-can-eat dataplans and can't afford to buy apps. It won't kill Ovi, it means a slow bleeding death to Ovi. And all smart developers jump away from Ovi and Symbian, develop on all growing platforms - and wait - not develop for, but wait - to see if Phone 7 will emerge as a significant platform sometime more than a year from now. The ecosystem goes from a potential 'Win-win-win' situation to the ultimate 'lose-lose-lose-lose-lose' and let me add 'lose-lose-lose' system. Less handsets, with increasingly less high-end capabilities, used on ever less-capable networks and lower speed connections, by ever less-affluent (and even illiterate) users, accessing ever more old and obsolete apps, of ever less updated and modern apps, generating ever less revenues, offering ever less advertising and virtul property alternate revenue streams.. This is the most toxic 'ecosystem' conceivable. Its like a dead sea, where the salt content just keeps growing until nothing can live in it. Not an eco-system, a toxi-system.
SALES IN PHONE STORES
The sales reps will want to sell phones with higher prices. Nokia phones will be discounted just to move them. There will be higher-priced phones of similar specs by several makers especially on Android. Normally for sales reps, it would be difficult to argue why one phone model or one phone brand should be considered rather than another - but now Stephen Elop gave each of the hundreds of thousands of mobile phone sales reps around the world the perfect 'excuse' to try to switch the customers who ask for Nokia phones - to switch to Android or other rival phones (and sell that customer a more expensive phone). They will all sing the same song, "but my dear customer, were you not aware, that Nokia is discontinuing the Symbian operating system? This phone will be obsolete within months, you really should consider this phone by.. (brand X)." Easy-peasy.
The sales reps will do the biggest damage to Symbian. They don't want their customers coming back to the store, with an opened Nokia box, a few days later, with 'buyer's remorse'. The sales reps don't want to have to take back the phone, and do a SECOND sales effort for the same customer, for no added sales commission. They learn very fast, after one of the friends to one of the customers said "oh no, didn't you know Nokia phones are going to be discontinued - you don't want that phone, go quickly back to the store, to replace it." The clever sales people will anticipate this, and all will be now singing the same song - Symbian is dead, dear customer, are you sure you want a Symbian phone?
This all creates a vicious cycle where each element damages Nokia's sales performance ever more. There are no more premium phones until the new Phone 7 handsets arrive. The customers will not see good phones, will not be desiring Nokia premium phones (thus there won't be demand for them). The sales reps won't be pushing Nokia smartphones at any price point - in fact the sales reps worldwide will start to push random customers away from Nokia/Symbian phones to any other smartphone - and the sales reps will do this in good conscience, feeling they are honestly helping their customer (to build a good customer relationship, to get the customer eventually to come back a year later and buy another phone from that salesguy). The ecosystem sees a deterioration of new premium content in apps - this means less appeal to Ovi - this means less paying customers for Ovi - this means less demand at Ovi store and that means ever less demand for Symbian versions of apps - while those same ex-Nokia loyal customers now shift - primarily to Android - where the Android store will find a growing demand from customers including high-price app buyers. The whole Nokia/Symbian/Ovi mess is a vicious cycle, each element of the cycle only accelerating the damage to Nokia's premium phones.
E-SERIES SURRENDERS TO BLACKBERRY
I have been explaining that in the enterprise/corporate customer space, its a battle between two giants, Blackberry the gorilla and Nokia E-Series the challenger, where Microsoft's old Windows Mobile, Palm and to a very small degree Apple's iPhone were the pretenders. Please do not argue the Apple point with me on this blog, this is about Nokia and Microsoft and in this case of E-Series it is between E-Series and Blackberry - I am talking of phones that are bought by big enterprise customers, bought by the thousands at a time and issued to staff as employee phones, usually for middle managers, sales staff, field engineers etc. And the math is overwhelming. Overwhelming. The latest January 2011 survey by TNS of US corporations said that of the big corporations (1,000 employees or more) 81% used the Blackberry. It can't be more clear than that!
Now, the world's second most popular enterprise phone (but not in the USA obviously) was Nokia's E-Series - with Symbian-based enterprise apps. RIM has been selling the story to every enterprise customer that their systems are so secure that President Obama is 'the Blackberry President' and RIM is the only smartphone platform that has NATO security level etc. We hear almost weekly about some country bickering with RIM about their smartphones being 'too secure'..
The fight in the enterprise space was a two-way race, Blackberry vs E-Series. And now, with this decision, Nokia surrenders to RIM. All those enterprises that bought various E-Series phones - because they already had Symbian based systems to connect to their CRM and E-mail and ERP and other corporate data systems - all those are now looking at the Symbian systems and their IT buyers know what 'obsolete' means in IT. It means hideous delays, astonomically growing maintenance costs and increasing problems of incompatibility. There is no conceivable upside to Nokia E-Series abandoning Symbian. It is all disasterous news to every enterprise customer using E-Series Symbian corporate apps today.
They will want to get rid of E-Series and Symbian as soon as possible! As soon as possible! Nobody is now going to approve a new Symbian based E-Series installation of any software and all will be looking to transition away from Symbian as soon as possible. Some will go to Android. Many will consider the iPhone. And most will land of course in Blackberry's lap. But none will take Windows Mobile for the same reason - it is an obsolete system. And very devastatingly for Nokia E-Series - the Microsoft Phone 7 platform won't help sell E-Series until there are E-Series phones on Phone 7. So Nokia cannot even try to save their clients with the Phone 7 story. Nokia lost all credibility in the enterprise space last Friday when Stephen Elop announced his stunning change.
This part of E-Series is collapsing as we speak. The costs of IT in large corporations is typically 80% maintenance costs and only 20% new system installation and purchase costs. They will hate finding out that their existing Symbian based E-Series is now a dinosaur. They will hate Nokia for it, and will curse the day they approved the E-Series into their IT system integration plans. They will want it out of their systems still while there is some support left. The RIM sales staff know this and are now bombarding every known E-Series client and offering to swap out E-Series and bring in Blackberries, and bring RIM system integrators and app developer partners to do the conversions of the email systems, customer management systems etc.. This is a devastating loss for about half of what is Nokia's E-Series.
The other half of E-Series is the youth market where Blackberry was already doing very well, and while apps won't be as relevant here, they are in gaming, and the youth are very knowledgable about their phones - often know the phones better than their elders do - and they will also instantly understand what is an obsolete system - like Playstation 2 vs Playstation 3 in their parlance - and will all be advising their friends and peers, if you want a QWERTY phone, don't buy the Nokia one with the obsolete Symbian system.. This is all bad news for E-Series.
MY PHONE HAS MORE MEGAPIXELS
The Apple loyalists will get the last laugh. There has been a long battle between the iPhone supporters (joined more recently by Android supporters) - saying the smartphone business is all about the usability, the OS, the apps and app store - and that its useless to do 'feature list' comparisons, my camera has x megapixels more than yours, that kind of comparisons. In reality, both are relevant of course, some customers do buy a phone based on its camera for example, or will buy a bigger screen or will only consider a phone with a QWERTY keyboard etc. But there is plenty of merit, that for many 'enlightened' buyers, especially those who tend to think of the smartphone as a 'pocket computer' - for them the OS and apps and app stores are particularly relevant. Nokia has just thrown in the towel in that race, and stepped out of the ring - without being defeated. They just quit the race.
Now Nokia can only compete on the feature list. This is a step back, regressing against the industry trend, it is like Boeing suddenly abandoning jet engines for the brand new Boeing 747-800, and using propeller-engines (and suddenly crossing the Atlantic takes 7 hours in an Airbus but 15 hours in a Boeing haha). An honest step backwards. Nokia is now voluntarily abandoning any possible arguments about its 'second most popular' app store environment (which is what Ovi bravely managed up to the end of last year when they were shipping at the level of 2 Billion downloads per year, vs Apple's world-leading 7 Billion per year level). Now Nokia will only be able to sell 'we have x megapixels on our cameras, y resolution on our screens, z keys on our keyboard' etc. I think this is not good for Nokia's competitiveness, especially not in the higher end of smartphones.
HIGHER COSTS.. NO. LET ME REPHRASE: MUCH HIGHER COSTS
Nokia already had higher costs than many of its rivals, with expensive design and premium phone production in Finland even as ever more of Nokia's phones are produced in lower-cost countries like China, India etc. Nokia's internal organization was messy and caused delays and bureaucratic costs - these are what are often grouped as 'execution' problems, where Nokia had good concepts (the N8 was a hot phone a year ago) that then caused delays after delays, and cost-overruns after cost-overruns (N8 released after three quarters of delays). These were not fixed with the Microsoft Alliance. They may - and its a very 'hopeful may' closer to 'wishful thinking' than likelihood - that when the partnership between Microsoft and Nokia is completed in about a year to 18 months from now - that Nokia will be more streamlined. It may be (I am only playing devil's advocate) that dealing with Microsoft means all sorts of new hassles (attorneys for example) and Microsoft's own bureaucratic style will actually create further delays for Nokia, not make things better. But that remains to be seen.
What we do know, is that right now, between now and 2012, Nokia's staff has to go through all sorts of Microsoft-training, on how processes work, how the collaboration works, what the Microsoft Phone 7 current OS can deliver, what is possibly coming in the next updates to that OS, what kind of issues does Nokia have control - more importantly, what Nokia used to be able to control before, that it can no longer control now, etc. This is not Nokia organization learning 'new' skills of where the handset business is transitioning (like say, Cloud computing or Augmented Reality or 3D etc) but rather, it is un-learning the Nokia/Symbian way to do smartphones, and re-learning the same concepts, with Microsoft terminology and processes. Its a huge effort (some might say waste) to spend time studying an alternate way to do the same thing - which invariably will highlight where Symbian and the 'old Nokia way' was better - and those lessons will include people who were involved in the Maemo and MeeGo projects - and some who still will be in the MeeGo project - and they will find plenty of opportunity to suggest MeeGo would have been as good - or often better - than this new 'Microsoft Way' (whether that is true or not - that is human nature, and adjusting to change).
Absolutely it is inevitable that there will be plenty of opportunities where it will be factually correct - that the old Symbian/Nokia way, or the 'partnering with Intel on MeeGo' way of smartphones - would have been better than the Microsoft way - on some given particular detail. It is likely there are more of those, as Nokia was so much more a success in smartphones in the past ten years than Microsoft ever managed - and Nokia has far more software competence in smartphones than Microsoft - so these 'arguments' and 'debates' will refresh the painful wounds of the past that was Symbian and the alternate path, that would have been MeeGo. But equally, there are of course areas where Microsoft will bring better ways. The big point is, that Nokia organization will spend much of 2011 not in getting more modernized, but in switching to a parallel version, a lot of time wasted in learning an alternate way to do the same thing. That will not help Nokia internal staff efficiency at all in this year, and probably the end result sometime in 2012 will be no better (but no worse) than it was today. Note - nonetheless, this is very costly and time-consuming, draining Nokia profitability - with very little to show for it.
Then there will be the added costs of now supporting three operating systems for smartphones (plus the older S40 proprietary operating system for Nokia dumbphones). There will have to be compatibility charts, which ability is with which platform, etc. There will be variations on sales support materials etc. All this will be happening under enormous stress, where the CEO says the platforms are burning, and the staff has to go to internal training and the competitors are eating into market share, and the Nokia profitability is suffering so the managers don't get to hire more staff to help, etc. So there will be mistakes in this mess, and that means more upset customers, returning phones. All of this means, more internal problems, more costs, more delays and considering the new CEO - far more damage to the costs-side to profitability. It is clear that this transition was going to hurt Nokia costs, the CEO admits as much. I cannot say how much costs will go up, I am not enough of an expert, only that they will - a lot.
DIE ANOTHER DAY - OR DIE YET ANOTHER WAY
Symbian phone sales will now be in terminal decline. Nobody doubts that. How far, that is anybody's guess - but I have one analog that we can compare to. There once was a smartphone system that announced it is discontinuing the OS with no migration path to the next OS. That was Microsoft's Windows Mobile and it happened last year. I think it is a good indicator of what might happen. Before Microsoft announced that there is no migration path, Windows Mobile had 9% market share in Q4 of 2009. Then in Q1 it announced the stunning news, that there was going to be no migration path. By Q4 of 2010, the new Phone 7 devices appeared. How badly did Microsoft's market share drop in four quarters? The market share crashed to 3% by the end of Q3. Or in terms of relative loss - so we can construct a measure - they lost roughly one quarter of their total remaining market share - every consecutive quarter for four quarters straight. So let me rephrase. Take all your customers. Destroy one quarter of that market share in three months. Count how much you have left. In the next three months, destroy a quarter of that new number. And see how much is left. And repeat. And repeat. That is a reasonably fair model, to make a guess, of how bad might it be for Nokia.
It will probably be worse - because Microsoft at least was continuing (as Microsoft) as the app developer and eco-system owner. Now we have Nokia abandoning its Symbian developers, so it may be that the loss is greater per quarter than what Microsoft saw in 2010. With Microsoft there were several big handset makers (HTC, Samsung, Motorola, LG, SonyEricsson etc) who made WinMo phones. So the 'pain' was not singled out to one brand. In the case of Nokia/Symbian it is continuously only Nokia this year. So I do think that the problem will be at least as bad as it was with Microsoft last year, it may be worse.
But we do not even know where to set the 'starting point' for the model - because Nokia's smartphone market share was in free-fall in Q3 and Q4, crashing from 39% in Q2 to 28% in Q4 - very much due to the previous price dumping, that was executed under the previous CEO's Olli-Pekka Kallasvuo's leadership. Can we expect that Nokia's market share fall has stopped (at 28%) or is it continuing on that trajectory and ends at say 24% for Q1? We honestly do not know. But we can be pretty sure, it started to fall from February 11, so even if it stalled for the first half of this Quarter, it is now dropping again.
There is a bit of a silver lining to Q1 for Nokia, and that is China, and the Chinese gift-giving season which last year produced a bonus peak sales in the Greater China region for many manufacturers from Nokia to Apple. And that may be why the timing of Stephen Elop's 'burning platforms' memo and the announcement on February 11. They wanted to make sure, Nokia was not damaging Chinese new years's sales. So we may actually see a modest 'recovery' to Nokia's market share in Q1 (compared to Q4). We really don't know now at this point. So lets take a 'best case' scenerio and build upon that. Lets assume that for Q1, Nokia's smartphone market share stabilized at 29%. Now lets assume that the drop in market share will 'only' be as bad as it was for Microsoft Windows Mobile last year, before Phone 7 started to ship. That means we'd get the following target market shares for Nokia in 2011:
Target Nokia smartphone market shares after Symbian announced to be discontinued:
Q1 2011 - 29%
Q2 2011 - 21%
Q3 2011 - 16%
Q4 2011 - 12%
The full year would end with an average market share (remembering the sales of smartphones grow, so Q4 sells far more smartphones than Q1) of 18%.
Now, my consultancy, TomiAhonen Consulting, has a rough model saying the year 2011 will sell about 500 million smartphones (which is growth of 67% compared to 71% that the smartphone industry grew last year). I think its pretty safe to expect that smartphones will continue to grow very strongly this year, as Apple is now bringing us the cheaper 'nano' iPhones, that Hewlett-Packard is back in smartphones with new Palm WebOS based smartphones, and all major handset makers have gotten fully onboard with (mostly Android) smartphones from LG to ZTE to Sharp. And the added interest of the smartphones space by PC makers like Lenovo, Dell, Acer etc.
If the year ends up with 500 million smartphones (and that would be a very good year) and Nokia does 18% of that (which I feel is too optimistic) then Nokia would sell 92 million smartphones - this would be the first year ever, that Nokia's total smartphone sales would decline. Not that they would grow less slowly than the industry - that the actual unit sales of smartphones would decline! This while the industry itself grows by two thirds bigger than just a year before. This will be a disasterous year for Nokia - and this is my 'best case' model. If Nokia's Q1 starts at a lower point - say 26% rather than 28% - the corresponding fall will be even worse for the full year.
This decline in premium phones alone - only the market share loss (in the best case scenario) means a decline of 20% in total handset unit revenues by Q4. Roughly speaking a loss of 5% of revenues per quarter. Last year 2010, for the first time Nokia's smartphones unit that only sold 23% of all phones by end of year, was generating more revenues than the dumbphones unit. That will now shift back, and the dumbphones will do most of Nokia's handset income in 2011. This is before we consider a 'downgrade' of smartphones from premium smartphones to low cost smartphones and the further impact that will have to the Average Sales Prices.
AVERAGE SALES PRICES
Then the average sales prices for Nokia. In Q4 Nokia smartphones ASP was 156 Euros (about 210 US dollars at today's exchange rate) and for dumbphones the ASP was 43 Euros (about 58 US dollars). First - we cannot expect that Nokia ASP can grow, it has to decline. Nokia's smartphone ASP grew from 136 Euros in Q3 of 2010 to 156 Euros in Q4. This was strongly driven by the N8 and new premium smartphones running the newest Symbian S^3 operating system. It is fair to assume, that this price segment will be hit the worst. We could say it will decline by 20 Euros every quarter from now until the new Phone 7 smartphones arrive - and the facts would support that kind of level. But again, lets be positive, lets make this the best-case scenario - lets say the price drop is only half that. Lets say the Nokia ASP will decline 'only' by 10 Euros per quarter for smartphones, every quarter from now until the Phone 7 phones arrive. What is Nokia's ASP by Q4? 116 Euros (or about 157 US dollars). Apple sells its iPhone 4 at 600 dollars. Blackberry's average sales price is over 300 dollars. Apple's new 'Nano' iPhone will sell for 200 dollars without subsidy (and if we assume half of all iPhones were Nano models, the ASP for Apple would be 400 dollars obviously) but Nokia average price of its smartphones would be half the price of Blackberry and almost a third the price of Apple's smartphones.
What will this mean for revenues? By Q4, if the ASP is down to 116 Euros (and I think it will fall more than this, until Phone 7 models arrive) - Nokia's smartphone unit would generate revenues of only 17% of Nokia's handset unit! They would truly crash, from generating 53% of all Nokia handset revenues to 17% in just one year. Or to put it another way, when we add the market share decline, and the decline in ASP - we see that in four quarters, Nokia's smartphone unit - its profit engine - will have declined to 28% of its size! This - while I am modelling the total smartphone industry to explode by 67% in size!
I have this preliminary model for Nokia smartphone revenues
Quarter . . . Market Share . . . Unit Sales . . . . ASP . . . . . Total Revenues of Smartphones
Q1 2011 . . 28% . . . . . . . . . . 29 M . . . . . . . . 146 Euro . . 4.3B Euro
Q2 2011 . . 21% . . . . . . . . . . 25 M . . . . . . . . 136 Euro . . 3.3B Euro
Q3 2011 . . 16% . . . . . . . . . . 21 M . . . . . . . . 126 Euro . . 2.6B Euro
Q4 2011. . 12% . . . . . . . . . . 17 M . . . . . . . . 116 Euro . . 2.0B Euro
The trends are all bad. Market share will decline. Unit sales will decline. Average sales prices will decline and subsequently for the smartphones unit, the total revenues will crash during the year.
Before this Microsoft alliance was announced in Q4 of 2010, Nokia's smartphones unit delivered 36% of total Nokia revenues. One year later, the smartphones unit will be delivering only about 14% of total Nokia revenues. If you felt that a smart handset maker 'migrates to smartphones' (like say Motorola, Samsung, LG, SonyEricsson etc) - then this is truly regressive by Nokia, disasterous decline. During this year, obviously. It then is up to this partnership to turn Nokia around and get some gains in 2012 to recover (if that is possible)..
THE SHRINKING VIOLET
In 2010 for the full year, Nokia earned 42.5 Billion Euros (57 B USD) in total revenues. 29.1 Billion Euros out of handset sales, 12.6 Billion out of network sales and 1 Billion from Navteq. At the end of the year, Nokia's smartphone unit was generating 53% of all handset sales.
At the end of 2011 - for the fourth quarter of this year - the level where Nokia would be, assuming all NokiaSiemens Networking sales, dumbphone sales and Navteq sales remain as strong as today, and assuming the only 'harm' of the Microsoft alliance would be to Nokia smartphones unit - the equivalent size of Nokia at the end of this year with smartphone revenues down to 28% - is a total company size of 31.4 Billion Euros (ie 7.8 Billion Euros for Q4) and in US dollars 42.5 Billion. Yes, the company at the end of this year will have lost one quarter of its total size (even without any elimination of NokiaSiemens Networks or any other units). Note, the full year stats will not be that disasterous - I am talking of the company during Q4, before the new Microsoft Phone 7 handsets will start to be sold. So the decline in Nokia size will be constant through the year, but yes, this decision by Stephen Elop and the Board of Nokia will at least destroy one quarter of Nokia's income. And in very rough terms then, we could say Nokia will bleed about 6% of its total revenues per quarter - shrinking 6% per quarter in size. This is huge decline in revenues (not considering increased costs and therefore we have not even touched on the issue of profits)
PROFITS TURN INTO LOSSES
And that income loss is from the unit that made most of Nokia's profits, so the damage to Nokia profits is far worse. FAR worse! Remember NokiaSiemens Networks reported many non-profitable quarters last year and its profit was in Q4 was only 3.7%. The cheap phones unit is not the profit engine of handsets either. Nokia's total operating margin was 9% in Q4. That is now in severe decline mode. It is likely still to be on the positive side in Q1 but it will be near zero by Q2 and probably be negative by Q3 of 2011. Look at all the trends - none of this Microsoft Alliance helps NokiaSiemens Networks (the unit with the worst profitability). None of it helps dumbphones. It probably hurts dumbphones competitiveness (damages its profitablity). But for smartphones where Nokia makes most of its profits - the revenues will crash-dive and the costs will skyrocket. The smartphones unit will become a loss-maker during 2011, that is clear to me, Nokia cannot extinguish its considerable fixed costs - its offices of its sales networks etc - as the sales of its premium phones decline. Nokia still has to sell its lower price smartphones and its dumbphones...
You heard it here first. Now lets see how the profitability of Stephen Elop's new 'Smart Devices' unit will perform compared to its 'Mobile Phones' unit haha. Watch unit sales decline, ASP levels decline and profitability decline. For this year, that is inevitable.
NOKIA BOTTOM LINE
So for 2011 - what does Nokia gain from the Microsoft partnership? It loses the high end totally for the smartphones - more or less irretrievably and forever. It gifts what remained of this - and bear in mind, the N8 sold something like 3 million units just in one quarter and together with the E7, it should be selling even better in the first half of this quarter - but yes, Nokia gifts the top end to its rivals, especially Apple, Samsung, SonyEricsson, HTC and Motorola. At the enterprise space Nokia ceases to be relevant, destroying the strong footprint the E-Series had built, surrendering all of it kindly gift-wrapped as bonus sales to RIM. Nokia will change to become only be a low-cost, low-brand provider, somewhat like the K-Mart of handsets. Nokia, the Easyjet of smartphones. Yes, Nokia will probably still be the world's biggest handset maker at the end of this year, but its quite possible Nokia will no longer even be the biggest smartphone maker (Apple will be breathing down Nokia's neck) and certainly Nokia will not make any meaningful share of the phone industry profits this year. I expect Nokia smartphones unit to become unprofitable by the summer and the situation to grow progressively worse with all of Nokia in the red before the Phone 7 handsets arrive and possibly - possibly - some modest recovery can start to happen.
MEANWHILE AT MICROSOFT
I wish I knew Microsoft's business nearly as well as I do Nokia and mobile telecoms. I do not. I cannot comment accurately on most of Microsoft - please go to IT and software industry analysts to get the full impact. I did mention that Microsoft has a lousy reputation in past partnerships (see Asymco's blog on that story). So let me only look at Microsoft 'Mobile' unit and what it can expect.
First, there are stories that Microsoft is paying 'billions' to Nokia to get it onboard. This will not make Microsoft's current handset maker 'army' happy. They are pretty stunned over at LG, Samsung, HTC and SonyEricsson. Three of those (LG, Samsung, SonyEricsson) were part of the Symbian partnership and all left it - SonyEricsson and Samsung late last year - now they find that they thought they had gotten rid of Nokia, they find Nokia now here at Microsoft's Phone 7 - and not as an equal partner, but as a preferred partner. This will not bode well for the Phone 7 family.
But for the app developers, who were lukewarm to Microsoft's latest platform, this adds tons of credibility to Redmond. They are now a 'big' player and specifically, as this is Nokia's stated platform of choice, to replace Symbian - its a fair argument to say that Nokia with 33% of all smartphones of the full year 2010 - will transfer to Microsoft. That story will grow tired during the year, when Nokia's market share crashes to 21% and 16% and 12% - but Microsoft can always 'spin' that decline that it is just in anticipation of the 'great success' that Microsoft will have once Nokia is onboard selling handsets in 2012.
Understand that no matter how tiny Nokia may end up before they ship Phone 7 devices, this is a massive gain to Microsoft. Its last Windows Mobile market share (before Phone 7 started to ship) was only 3% of all smartphones. Microsoft's amazing brand-spanking new all-singing all-whistling Phone 7 OS in Q4 of 2010 had half of that(!) market share at 1.5%. So if Nokia even walks in wounded at 10% at the end of the year - it would be 6 times better than what Microsoft was able to achieve with its current partners.
So this gives Microsoft a lot of a boost. The ecosystem will grow. The existing handset makers in the Phone 7 family are wise to remain on the system - even as all will also make Android devices - just to keep an eye on Nokia and on Microsoft, and do the occasional clever handset on Phone 7 to try to differentiate. I think it tells us a lot, that all major true innovative phones of high tech in the past few months - like Samsungs pico projector Galaxy Beam, or Sharp's 3D display phones (and LG's similar phones) and SonyEricsson's Xperia Playstation phone - are all on Android, not on Phone 7. The Microsoft Phone 7 platform is not yet conducive for true innovation. That may change. But it is not the innovation platform at the moment. Android is.
Nonetheless, expect Microsoft's overall market share to be in slight climb during 2011, as the suppliers offer more Phone 7 devices and especially as Nokia exists the premium phone stage with obsolete Symbian phones. The big winners will be Android, iPhone, Blackberry and bada, but Microsoft will also gain. I would expect Microsoft's market share to grow to the 3% - 4% - 5% range during this year, and they will celebrate this as 'big growth' from the 1.5% of Q4. But every time we hear Microsoft talk about mobile, they will be telling how great their future is with Nokia's smartphones soon-to-come.
FREE LESSONS IN TOUGHEST INDUSTRY
Separately, Microsoft gets to pick the brains of the world leader company in the most complex technology - smartphones are the most complex consumer electronics ever made and the 3G mobile telecoms industry is literally more complex than rocket science. Microsoft never knew how to do smartphones well. They were always the unloved step-child in the shadow of Symbian and Palm and Blackberry and iPhone and Android. Microsoft have only very slim competence in this area. They used the Sendo experience to pick the brains of the engineers and used that to help build their smartphone offering with HTC (I am only repeating what Sendo claimed in its court case and was found to have been more in the right than Microsoft's counterclaims). Now again, Microsoft had found its smartphone competence was outclassed by all rivals with Windows Mobile but they can now tap into the minds of the market leaders - remember Nokia in 2010 was bigger than its two nearest rivals, Apple and RIM combined - with by far the biggest R&D spending of customer insights into mobile phone users. Microsoft gets all that knowhow more-or-less for free. Nokia would not 'sell' this knowhow to its rivals for any price, yet it will now give it all away for free to (previous rival) Microsoft in this so-called 'partnership'. I think we see who is gaining more from this 'partnership' haha?
Will this mean much to Microsoft's bottom line - no, of course not. The big money of Microsoft will still continue to come from the PC business in Windows and Office Suite etc. But Microsoft was struggling severely in mobile, prior to this partnership, suddenly Microsoft is back in the game. Tellingly both as companies, and as the CEO relative 'stature' - Steve Ballmer will be seen as the far more relevant 'partner' of 'not equals' vs his Nokia CEO counterpart Stephen Elop, who will seem like the assistant to Ballmer whenever both are on the same stage.. This will reflect also in the image of Nokia's leadership which now will be seen subservient to Microsoft's image. The West Coast spin which will soon be accepted as mantra, is that Microsoft came to rescue Nokia when it actually is much more the other way around (for mobile, the future of computers, and the future of the internet).
That was this year. Then we see Year 2012, the year we should see a set of rapid releases of new Phone 7 smartphones from Nokia. Note, if they really push things, they might get one or two phone models out during late 2011 (and with Stephen Elop in charge, anything is possible - perhaps subcontracting a 'Nokia' branded Phone 7 smartphone to some Asian maker like maybe Sharp - who made the Kin phones? or to HTC? I would not be surprised).
Then it is the 'recovery stage' trying to rebuild the Nokia premium phones brand, when Nokia's market share is around 12% in smartphones and definitely smaller than Apple and likely also smaller than Samsung, possibly even smaller than RIM. The first Phone 7 smartphones from Nokia will be rushed - the management will be in crisis mode this autumn with the corporation making losses - and management cannot accept any delays - so the inevitable faults will creep into the early phones (this, assuming Microsoft is perfect on its side of software delivery schedule and no bugs, haha). Remember Anssi Vanjoki stepping in to stop the N8. We will be back to the hassles we witnessed with the N97 now, as Nokia is rushed to release their first Phone 7 devices.
The early Phone 7 handsets will sell quite well, because there will be some installed base of loyal Nokia owners who waited for these new phones. But the early phones will be buggy in their design - causing dissatisfaction - and they will definitely be more like Microsoft, and less like Nokia - so the loyal Nokia past owners will often be disappointed. No doubt, there will be existing Microsoft Windows Mobile owners who will love the new Nokia-Microsoft phones as an improvement - but that is a tiny minority of the installed base of smartphones. Most are existing Nokia owners who while they'll clearly see that Phone 7 is better than the Symbian they've had in the past, these latest - rushed - Nokia new smartphones will not be as thoroughly tested and debugged as Nokia phones of the past, and they will be disliked by Nokia loyalists, by and large.
The first set of new Microkia Nokisoft phones will not be the top superphones like a Communicator or N93 or N900 or E7 with super-advanced features, that kind of design - at that price point - will take more effort. They probably will announce some superphone or superphones for the Mobile World Congress a year from now in February 2012, but those won't appear on the shelves until in the second half of 2012. Even the first half of 2012 will only mean a 'holding action' where Nokia and Microsoft will be pleased if they manage to stop the market share decline and start to re-discover a slight uptake in the average sales price of Nokia smartphones. That is the best case scenario. Nokia may well remain unprofitable for four quarters straight into the summer of 2012.
Then Nokisoft and Microkia will be back into the game, and seriously can start to fight for the ecosystem battle - using the awesome execution and speed of the tortoise that is Nokia, combined with the astonishing execution and speed of the snail that is Microsoft. They will capitalize on the destroyed brand loyalty of Nokia and its N-Series and E-Series. They can count on utter rejection by any enterprise buyers. Meanwhile Apple, Android, RIM and bada will have market shares far greater, with ecosystems, app stores, customers in the far greater range. Microkia Nokisoft may well fight a noble battle for fifth place against say, Hewlett-Packard's WebOS, the various Linux Mobile handsets from Japan, what will become of MeeGo with Intel
(BTW, did you notice, MeeGo is not vaporware - they released the first netbook PC by Japan's second biggest PC maker, Fujitsu - which was not 'announced' - it went on sale yesterday, in its launch market of Singapore. No doubt Fujitsu is equally stunned by Nokia's secretive sudden move to abandon MeeGo as Intel was - Stephen Elop told us that he called Intel's CEO the night before Friday when he made the announcement. Wow. What a way to treat 'strategic' partners. This is the new Nokia. But MeeGo will continue as a thorn on the side of Stephen Elop and all Nokia developers, of what could have been.. The worst part of this Phone 7 mess, is that Nokia could not kill MeeGo completely so it is not out of view. Many will ask, why didn't Nokia allow the N9-00 to be sold in 2010 for Christmas, why did Elop delay the MeeGo launch, why did MeeGo boss resign in October and now, again, why did Elop fire the new boss of MeeGo? If MeeGo was a disaster and years behind schedule, that makes sense. If Fujitsu is able to ship a notebook - not announce but sell it - this week in Singapore, that tells me MeeGo has been ready for a while. Nokia just refused to let it emerge because a CEO had another agenda - perhaps driven by his deep stock portfolio still owned of Microsoft?)
WHERE ARE WE?
So - for this year 2011, its not major change at NSN. This partnership with Microsoft creates some slight damage to Nokia's dumbphones unit. In the smartphones unit Nokia will see catastrophic decline in market share, a decline in unit sales and a massive plunge in average sales prices throughout this year. The costs at Nokia will skyrocket and thus the profits will vanish. This is a very bad year for Nokia in phones. Meanwhile Microsoft is laughing broadly, they are back in the game and no matter how badly Nokia is mangled in this proces, Microsoft ends up with a big jump in their market share next year, with what remains of Nokia.
Next year, 2012, we will see Microkia Nokisoft return to the battle, starting - if things go very well - with something like 12% market share on Nokia's remaining Symbian side, and perhaps 4% or 5% at Microsoft's side (assuming no delays caused by Microsoft). That they will then try to migrate into something close to 10% by the end of 2012, but by then, hopefully Nokia is back to profitability. If that company still exists at that time. This will be a troubling year for Nokia. And mostly, we all will learn to think of Nokia as a discount brand of phones. What a shame..
Note - in the end, there are so many problems on this path, that very likely this venture will fail. What can Nokia do? It can't go back to Symbian or MeeGo with any credibility. It will then limp into the Android family as a broken company with what little is left - and take onboard YET more re-training costs and R&D costs of re-designing its smartphones one more time away from Phone 7 onto Android. This is a lesson that LG went through - plummeting from profits to losses so bad, they fired their CEO. Is it too early now to ask for Nokia to reconsider its CEO appointment? No. I think the strategy cannot be this bad. There has to be some sense in it, something that I cannot see. Nokia's path to smartphones is blocked. Maybe Stephen Elop the brilliant cloud computing Microsoft guy can see some other path for Nokia and sold that to the Board. It is about all I can hope for, as Nokia is not going to be any meaningful success in making phones, not this year and the next - and has ended its aspirations to build its future with smartphones.
I will come back to this series (hopefully tomorrow) with an analysis of what Microkia Nokisoft means to the rest of the industry, as the competitor analysis of this giant change.
UPDATE Feb 16 - I have now added the competitor analysis, who gains the most out of the 50 million smartphone and 14.6 Billion dollar windfall, that Nokia kindly bequaths to its rivals this year. See Noki-Soft Windfall.