Earlier this week I reviewed Apple's latest quarterly results from a smartphones angle, today we do Nokia. Again, I apologize for the delay but am now trying to catch up on several items that happened past few weeks and getting the main points recorded for the blog.
Nokia total phones (dumbphones + smartphones) unit sales were down 1% from Q2 while the world phone sales grew, but Nokia is still by far the biggest phone maker in the world. Their total mobile phone market share (counting both dumbphones and smartphones) is down to about 32%, but Nokia are still bigger than nearest three rivals Samsung, LG and Apple put together. Thats market dominance.
The phone market is in a process of shifting from dumbphones to smartphones. Less than a year ago RIM, a pure smartphone maker, crashed into the top 5 of all phone makers. Now Apple has done that jumping in at number 4, and dumped either RIM or ZTE out of the top 5. Its possible we now have two pure smartphone makers in the top 5. Regardless, it was Nokia who invented the smartphone, and who have utterly dominated the smartphones space. Nokia has also been far more successful than any of its classic Top 5 dumbphone maker rivals (Motorola, Samsung, SonyEricsson and LG) in shifting its customer base from dumbphones to smartphones. Nokia's market share has always been better in smartphones than in dumbphones, and that pattern holds again for Q3 of 2010.
But the gap is closing. The classic competitors in dumbphones are either retreating from many markets in dumbphones (Motorola, SonyEricsson) or shifting strongly the focus away from dumbphones to smartphones (Samsung, Motorola). And this year three of the four classic dumbphone maker rivals have found the handset market to be so competitive, that they've reported losses in their handset business at least for one quarter this year (Motorola, LG, SonyEricsson). So the competition is clearly shifting to smartphones and while the US based pundits talk about everybody aiming for Apple, the real contest is not in the top end of smartphones where Apple rules. The real race is for the mid-range and low-cost smartphones that are the bread-and-butter for Nokia's smartphones business.
And while the experts were proclaiming Nokia dead on its so-claimed 'obsolete' Symbian operating system, Nokia knows this market better than most. The spoils of victory go not to the maker with the best phone (a technology focus) nor to the maker with the best operating system (also a technology focus) but to the manufacturer who best understands and serves the customer (a marketing focus). And the handset business is not like most consumer electronics, in most markets ie countries, the actual decision-making customer is not the "end-user", it is the mobile operator/carrier. And Nokia's carrier relationships are in a class of its own, in all markets except the USA (and those countries where several domestic makers rule the market, ie Japan, South Korea).
So Nokia's market share in both dumbphones and smartphones is remarkably stable over time (compare with say Motorola or SonyEricsson or Palm). And what of those markets where the operator/carrier is not the decisive customer, ie markets where there are no handset subsidies, then the end-user decides and that means the phones have to be priced competitively. None of that "600 dollar real price hidden in a 2 year AT&T contract, fooling the customer into thinking the price is 199 dollars" - nonsense. When customers are exposed to the real price - in all markets where customers pay non-subsidised prices, Nokia's market share is 50% or better.
So is it a surprise that even as its newest 'iPhone killer' flagship smartphone model, the N8, was further delayed and shipped on the last day of the quarter, and by most analyst views Nokia's product line was obsolescent, Nokia grew sales in smartphones again? If the analysts had been right and Nokia 'in trouble' then Nokia should have lost smartphone unit sales! But no, for readers of this blog it is no surprise. This race is not about who makes the best phone, or who has the best OS or the best app store with the most apps. Its about who has the best carrier relationships in markets with handset subsidies, or who sells the best value in phones to markets where there are no subsidies. And that is Nokia in all major markets except the USA (and Japan and S Korea).
So how did Nokia do? 26.5 million unit sales of smartphones (vs 14.1 million by number 2 Apple and 12.1 million by number three RIM). In smartphones Nokia is still the big gorilla, selling more than biggest rivals number 2 and 3 combined. But the competition is catching up. Nokia is bleeding market share, although slowly. Nokia's market share is now down 3 whole percentage points to 38% by Nokia's own numbers, or if we go by Strategy Analytics numbers, Nokia's market share is down six percentage points to 34%. No matter how you slice it, the market grew faster than Nokia's smartphones this past quarter, and thus Nokia's market share has fallen.
As to its migration of customers from dumbphones to smartphones, that is well under way for the world's biggest handset maker. These numbers tell us that Nokia has already migrated 24% of its total dumbphone customer base to smartphones. And done it while never losing profitability of its handset unit. That is textbook execution of the migration, something that Motorola, SonyEricsson and LG have been specacularly weak at achieving, and only Samsung doing a reasonably good job now. But of the classic dumbphone makers, Nokia is the benchmark of how to smoothly migrate your customer base from the cheap low-margin dumbphones to more expensive higher margin smartphones. To illustrate how well that has been done, if we exclude all dumbphone sales by Nokia, and only count its smartphones, Nokia's smartphones unit alone would still be the world's third biggest phone maker.
Regionally (don't you wish all phone makers gave this detailed reports of what they do in the world? - I'd love to see Apple or RIM or Samsung break down their regional performance etc..) - Nokia has gained unit sales in North America and Europe, while losing sales in Middle East and Asia-Pacific. The North American share was the smallest of the six regions that Nokia reports, so its impact was quite modest. The resurgence of European sales should do well in the battle with Samsung for who is biggest in Europe - Samsung has been catching up on Nokia very strongly in the past few years in Europe. The Asia-Pacific share drop is probably mostly due to the new cheap brand phones especially in India but in many APAC region countries. The Middle Eastern drop is more of a mystery to me what is happening there. Maybe spill-over from India etc.
The Nokia smartphone ASP (average sales price) has declined a little again when accounted for in Euro, down to 136 Euro per smartphone. In US dollars the average sales price is now 188 dollars for Nokia branded smartphones. This reflects both the general growth in the lowest price segments, and the fact that Nokia's flagship was delayed by almost a full quarter (the N8 has roughly a 500 Euro price when not subsidised by carrier/operator). I would think this was a low moment in Nokia ASP, and for the Christmas period the ASP will grow now that the N8 is actually seen in the wild..
On the profitability side, Nokia's downward trend in mobile phone unit profitability has been turned, and the company reported a modest growth in net profits for the handset unit, but the networks unit (NokiaSiemens Networks) was once again producing losses. As the company announced layoffs of 1,800 people, many of those out of Finland, this should impact the company's profitability in a positive way, going forward.
There are dark clouds also in Nokia-land relating to Symbian. The past quarter brought unwelcome news to the Symbian smartphone OS environment, as the last major branded global phone makers in the Symbian family, SonyEricsson and Samsung, announced plans to end their association with Symbian. Note, this still will not make Symbian a Nokia-only OS, Symbian powers half of all smartphones sold in Japan, as its the preferred smartphone OS for NTT DoCoMo, Japan's biggest operator/carrier. But it does mean that Symbian could be renamed N&N as its now only relevantly on Nokia and NTT DoCoMo smartphones.
Obviously in the past quarter Nokia changed its CEO. It has now started to ship the N8, its new flagship, which has been getting reasonably strong reviews, suggesting it will likely end up a big selling hit smartphone. Nokia would need that for the Christmas period of 2010, especially with the strong sales by the iPhone 4 and Samsung's Galaxy.
A good quarter by Nokia, considering a relatively weak product offering and delays especially to the N8. Now Nokia would need what it typically also delivers, a strong Christmas quarter to end the full year on a strong note.
Yep. Thanks a lot again! For Nokia smartphones, the Q3 was indeed with the old fleet i.e. clamped to N97.. Q4 should really be something else.
Posted by: Mikko Lehtovirta | October 29, 2010 at 11:51 AM
Thanks for updating us with smart news.
Posted by: Mojanemojan | October 29, 2010 at 12:03 PM
Apple is really stupid here because it could really capitalize on Nokia's misfortune at the moment while they are pulling their sh* together. They should just release a cheaper iPhone light (same internals just made out of plastic, smaller cam, no internal memory just supply 2GB sd card) for the masses and one with a sliding keyboard. Apple could easily sell 30 million handsets/q and be the No. 1 smartphone maker in the world.
Posted by: Don_Afrim | October 29, 2010 at 12:34 PM
"Apple is really stupid here because it could really capitalize on Nokia's misfortune at the moment while they are pulling their sh* together."
Apple grew 90% year over year last quarter Nokia grew 1.8%.
Apple also makes more on phones than the top 3 cell phone makers combined.
Posted by: KDT | October 29, 2010 at 10:26 PM
What is alarming, is that Nokia smartphone ASP has fallen about 30% in a year, at the same time Apple’s has been constant and RIM’s fallen about 9%. Nokia is still growing below market average.
@Don, Apple is not stupid. They capitalize on the market every second. Making a cheap iPhone would not only grow iPhone sales, it would also fragment the platform and devalue Apple’s brand. Apple does not want to be #1 smartphone maker, with unit sales, no matter the cost. They want to make “best phones”, keep the platform as uniform as possible and make lots of money. Also, at the moment Apple is selling every phone they can make, would the cheaper model mean they have more manufacturing capacity?
And BTW, Apple *is* the #1 smartphone maker, when measured by revenue, even more so when measured by earnings. Apple’s smartphone revenue was about 70% bigger than Nokia’s. Sure when dumbphones are in the mix Nokia is still 17% ahead. Keep in mind Apple is doing this with two models on the market, it is just unbelievable.
Tomi, ASP of N8 is near 430e, not 500e as you claim. About the same as Apple’s ASP was during the previous quarter.
Posted by: Jussi Hagman | October 30, 2010 at 07:36 PM
@KDT
Woah, not so fast. The 1.8% figure was for all phones. In Smartphones Nokia increased sales by 61% YOY, which is still less than Apple percentage wise but not neatly as shabby as you were trying to portray.
Also if you translate those percentages into numbers of handsets, Apple increased its unit smartphone sales by about 6.7 million units. No question that this is a very good performance, but Nokia increased its unit smartphone sale by about 10 million units! Again thats pretty impressive when the portfolio is stale.
The overall total phone sales were not so impressive, but that had more to do with the dumbphone side of the business and the lack of dual sim devices in indai for example. That will be addressed.
Posted by: Phil W | November 01, 2010 at 10:49 AM
@Phil W: 61% YOY for Nokia did lag the Canalys estimate of 95% global smartphone market growth by quite a lot. Canalys also estimated that Nokia already has a dominating 65% of the India smartphone market with over 200% growth, fueled largely by the low-priced 523x smartphones.
I think the main issues for Nokia are not dumbphones or lack of dual sims in India, but really the lack of an attractive and popular high-end offering. The N8 is probably still not enough.
Posted by: kevin | November 02, 2010 at 12:43 AM
Thanks Kevin,
Yes I did know Nokia didn't match the market smartphone growth YOY, the figure I saw was from Strategy Analytics and was 77%. Are you sure about the 95%?
So in percentage terms Apple outgrew the market and Nokia under performed. By adding the unit figures I was just trying to show another aspect to the story.
Clearly this was always going to be a difficult quarter for Nokia with the lack of new products, so I actually think it was a good performance all things considered. I agree one of Nokia's problems has been a lack of high-end offering, but that will change.
Going forward, I think the N8 and its sisters will do very well and will lift the profits next quarter. Your comment on whether it is enough depends on your perspective. I believe in the majority of the world the N8 will sell very well and will lift Nokia ASP and therefore its profits. It may well help to gain back some or all of the lost market share. What I don't think it will do is make a huge impact in the US, but I think Nokia is focusing on the Meego products next year to try to address that. Whether that will succeed is anyone's guess.
Posted by: Phil W | November 02, 2010 at 09:51 AM
Oops, the Strategy analytics figure should have been 78%. The 77 figure was million of units shipped.
Posted by: Phil W | November 02, 2010 at 09:52 AM
Hi All,
I will respond in stages, here the first set of replies
Hi Mikko, Mojanemojan, Don and KDT
Mikko - Yeah, if Nokia grew 10% from Q2 into Q3, while Apple's iPhone 4 was released in most markets and Samsung's Galaxy is the hot phone, now that the N8 is finally out in the open for Q4, this should be a very good Christmas period for Nokia (and a follow-up Q1 period in 2011 with the Chinese Lunar New Year gift-giving season as a bonus).
Mojanemojan - you're welcome. Happy to be of service.
Don - completely agree. Apple is squandering rare opportunities. The gap between Apple's true lead in usability, and any perceived lead in technology, will never be as big in smartphones anymore, as it is in 2010. Next year with the iPhone 5, the competition will be ever more close, just like with the Macintosh, once Microsoft started to reverse-engineer the Mac OS, and refined its Windows. So yes, Apple may be lulled into a false sense of security, thinking they can easily dominate this industry. They should take a very strong lesson out of Samsung (which will pass the iPhone in smartphone unit sales by Q1 of 2011, and then Apple will never catch them because of Samsung's vast product line and far lower cost touch screen phones, on far more carriers globally) - and beware, that the first 3 years they've not seen the full force of Nokia going head-to-head against the iPhone. Now, that Symbian is reasonably well re-engineered to do touch screens reasonably well, and with the N8 as the first test of that - Nokia is the 'sleeping giant' about to awaken. The fight for iPhone's space will be much tougher in 2011 than it was in 2010. And Apple should have now capitalized on its opportunity, not waste it...
Well, they are obviously not listening to me in Cupertino haha..
KDT - haha, thats not fair and you know it. I can take just the previous quarter, and make the exact opposite argument. Apple lost 4% while Nokia grew 11%. Who was smart and who was dumb. As we know on this blog, Apple's peculiar launch pattern means, that only annual data are meaningful, and as I've predicted a year ago, Apple's market share globally in smartphones has peaked. So don't quote the one exceptional quarter performance to try to make a point. We know our basic math here on this blog, KDT. That won't wash.
Thank you all for writing, I will return with more comments to the rest. Keep the comments coming
Tomi Ahonen :-)
Posted by: Tomi Ahonen | November 02, 2010 at 05:10 PM
Just a comment on this part:
"- and beware, that the first 3 years they've not seen the full force of Nokia going head-to-head against the iPhone. Now, that Symbian is reasonably well re-engineered to do touch screens reasonably well, and with the N8 as the first test of that - Nokia is the 'sleeping giant' about to awaken. The fight for iPhone's space will be much tougher in 2011 than it was in 2010."
Ahh, but I predict we will see strong growth in the smartphone area from Apple next year, as well as Samsung, HTC, Sony-Erricson, and possibly LG, though that's a wildcard. As for Smartphones, Nokias share of the market will stay the same, though probably fall, as I don't see their number of smartphones shipped rise very much, if at all.
The rise in smartphone sales I'm predicting, will partly come from more new users changing their old handset for a new smartphone, as well as the early adopters whose 1 or 2 year contracts are running out next year, and who are out for a replacement.
As for Nokias smartphone sales, I think the giant might not wake up, quite yet.
The new Symbian 3 does touchscreens reasonably well, as you have mentioned, but for Nokia "reasonably well" doesn't cut it anymore. Individual features like a great camera, or a good keyboard or a great screen or HDMI connections don't matter as much as the overall userexperience. The whole handset need to be a joy to use for the user, and here Nokia (or RIM) can't compete with Android or Apple. But what about Nokias loyal users? Well, they have been exposed (or polluted, if you will) to Android and iPhones from friends, early adopters and of course the media. (Though that's mostly relevant for Apple. I'm not talking about blogs or gadget magazines either, but good old newspapers and TV)
My father is an example of what I'm talking about. He's 60 years old and technically speaking he HAD a smartphone, a Nokia, but never thought about it like that before, or been bothered to use it like that, because of well... Symbian S60.
One day, out of the blue, he asked me "what this Android is?" I explained it to him, and he has since invested in one.
So yes: Symbian might be ok, but the whole platform isn't as complete nor as good as the competition. And in this race, it's not enough to be ok. It's the whole experience that counts.
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