Last in my Trilogy of Nokia Numbers postings re Q4. The Regional Split. What do you do if 92% of your loyal customers reject your new toy (Lumia)

This is the last of the trilogy of Nokia numbers postings related to the Q4 results. The first looked at the overall market performance of Nokia smartphones (world-record crash). The second posting gave the best calculations of how well Lumia and N9 sold, because Nokia CEO Stephen Elop is too much a coward, and ashamed to reveal the numbers. Now we dig into the numbers for one more look. How did the regional markets split, smartphones vs dumbphones. This will be interesting and we have some devastating news coming out of that analysis.

For those who can't bear to follow written explanations of mathematical calculations, here is the big picture. I calculated through a multi-dimensional optimization equation, what were the regional unit sales of smartphones (and dumbphones) based on the average sales prices. The accuracy is between 3% and 9% of any one region, so this is accurate to about +/- 100,000 units when Nokia total sales were in the many millions per region. Its not perfect, but it is VERY close. So if I said 3.2 million, the truth is most likely between 3.3 million and 3.1 million.

Based on that (see below), I found that the European market for Nokia smartphones was 9.7 million smartphones in Q4. That gives Nokia a Europe-wide market share of 26%. That is not the relevant finding. Take that 9.7 million actual smartphone units sold. I calculated that the 7 countries where Lumia has been launched, have 63% of the European mobile phones and thus the population of the countries where Lumia launched, produced 6.1 million Nokia branded smartphone sales. In the previous blog article, I calculated that in the 7 Lumia launch countries, a total of 466,000 units of Lumia have been sold in Q4 (this is the Europe part of the end-user sales, that is why it is less than 600K). 

Now it gets truly interesting. In those 7 countries where Nokia launched Lumia (and where the installed base of smartphone owners had a Nokia already in their pocket in 46% of the time) - only 26% were willing to buy a Nokia branded smartphone. Nokia lost more than four out of every ten existing loyal Nokia customers. But what of the customers who actually were happy enough to buy a Nokia branded smartphone.

In the countries, where Lumia launched, in Nokia's strongest market, where nearly half of consumers already have Nokia branded smartphones - when they walked into the store, and were shown Lumia smartphones - out of all European customers who ended up buying a Nokia smartphone in those countries where Lumia was available - only 8% were willing to buy the Lumia.

Only 8% of smartphone buyers, in Nokia Lumia launch countries, who actually ended up buying a Nokia branded smartphone - were willing to take a Lumia. The marketing push was so loud, certainly every customer knew of, and saw Lumia marketing. Yet 92% of customers who actually bought a Nokia smarthone: refused a Lumia.

Do not delude yourself. Lumia is a dead end. If 92% of your most loyal customers will refuse your newest and greatest flagship, and take an 'obsolete' Symbian smartphone instead - the Lumia is a comprehensive failure and the fantasy of the Microsoft Windows Phone 'third ecosystem' is utterly completely busted.

THE MATH

That was the big picture. I have more for you, if you are mathematically inclined. So first, the methodology. As we know the average sales prices of smartphones and dumbphones for Nokia (and as these are quite far apart from each other) and we have Nokia's regional breakdowns of total handsets sold (smartphones + dumbphones) in units, and in revenues - we can calculate the 'average sales price' per region easily. But with some multidimensional optimization we can actually model the actual unit sales of smartphones, and dumbphones, per region. I did it until I arrived at errors of less than 9% in every region - between 3% and 9%, and all errors in the same direction. So this is about an accuracy of +/- 3%. In practise, it means that the numbers I report here of unit sales of smartphones and dumbphones should not be off by more than 100,000 units, or 0.1 million.

Do the math to double-check me, multiply each of the smartphone units by 140.2 Euros, and each of the dumbphone units by 32.4 Euros, and add all those together, you should find the smartphone sales total 2,748 (vs 2,747 as reported by Nokia) and for the dumbphones sales 3,042 (vs 3,040 as reported by Nokia). Very close. Add the totals across, smartphone revenues + dumbphone revenues per region, should come close to (but always a bit less) than what Nokia reported for that region. For example Europe region by my method gets 1.87 Billion Euros where Nokia reports 1.92 Billion. Its not perfect, but it is yes, close enough. Here is what I found:

REGIONAL SALES NOKIA HANDSETS BY TYPE IN Q4 2011

Europe . . . . 9.7 M Smartphones . . . 15.6 M dumbphones
MEA . . . . .  1.8 M Smartphones . . . 24.1 M dumbphones
China . . . . . 4.5 M Smartphones . . . 10.2 M dumbphones 
APAC . . . .  1.3 M Smartphones . . . 33.4 M dumbphones
N Am . . . . . 0.3 M Smartphones . . .   0.2 M dumbphones
LatAm . . . .  2.0 M Smartphones . . . 10.4 M dumbphones
TOTAL . . . .19.6 M Smartphones . . . 93.9 M dumbpohnes

I have then calculated the regional market shares based on the above and the rough number of 37 M smartphones per region China, Europe, North America and Rest of World. Thus Nokia smartphone market share for Q4 in the four regions was (roughly)

Europe  . . . . . . 26%
China . . . . . . .  12%
N Am . . . . . . .    1%
Rest of World . . 14%

There you go (you're welcome, haha, I love this stuff, I do this anyway, but am happy that you followers and readers like this stuff too and that we now have a good way to share this kind of stuff)

WHEN 92% OF YOUR CUSTOMERS REFUSE YOUR NEW PRODUCT

So, the above is very solid numbers and the errors are only modest. But as we start to parse those numbers further, we get to the problem of estimate, of an estimate, of an estimate, and even modest margins of errors can grow to be unmanageable. But we can study two markets where we have large enough regions to make further analysis. Lets start with Lumia.

Lumia was launched in Europe, and as I said, 63% of the European subscriber base lived in those 7 countries where Lumia launched. Now when we take 63% of the European market for smartphones, we have a potential market size of 23.3 million smartphones. And obviously as Nokia sold 6.1 million smartphones in those countries, the European market share continues to be 26%.

So about 46% of Europeans own Nokia smartphones currently. Europe is the oldest and most mature region for smartphones. European consumers have had smartphones the longest and the average European smartphone owner is on their 5th or 6th smartphone already. And this being Nokia's 'back yard' its no surprise Nokia had the lion's share of the market. Out of those customers who now come to stores to buy a new smartphone (the smartphone buyer at Q4 in Europe typically was replacing an existing smartphone from about summer or autumn of 2010 with the current replacement cycle) who own a Nokia, only less than 6 out of 10 were willing to buy another Nokia. So under current Nokia branding and marketing and product portfolio, already in the store, more than 4 out of every 10 existing Nokia customers was churning away from the brand. For many of them, a Nokia using Symbian was the only smartphone brand they had ever used.

Thats bad. We already lost 45% of the loyal customer base in the store. Now what about those who are convinced to yes, buy another Nokia. What about this cool new Lumia then? Aha. Out of all smartphone buyers, in those countries where Lumia had launched, who actually agreed to buy a Nokia smartphone - 92% refused a Lumia. In the face of the biggest marketing blitz in European smartphone history, with overpowering Lumia advertising and promotion - including those free Xbox gaming consoles at some operators for buying a Lumia 800 - still only 8% accepted a Lumia! Yes. 92% of loyal, Nokia-owning, European smartphone buyers, who actually DID buy a Nokia smartphone - ended up selecting one of those 'obsolete' Symbian smartphones as described by Elop in his Burning Platforms memo a year ago. Yet European customers will prefer an obsolete Symbian smartphone over the brand-spaking-new cool 3rd ecosystem Windows Mobile Lumia smartphone by a ratio of more than 11 to 1 !!!!!

Twelve customers pay money to buy a Nokia smartphone - not a dumbphone, a Nokia smartphone. All are offered a Lumia. Eleven out of those 12 refuse the Lumia and take an 'obsolete' Symbian smartphone by Nokia instead.

This Lumia is so dead its not even funny. I explained why it fails as a flagship phone on its design and features. I explained then why it is failing based on actual consumer preference science in Europe. I know this stuff, I have written 12 books about mobile that are referenced in over 120 books by other authors! So it was pretty obvious and I knew that it would be bad. But even I could not imagine it to be this bad. So here is the evidence. 92% of new Nokia branded smartphone buyers in Europe in countries of Lumia launch, refused the Lumia. This horse is so dead I should not keep beating it anymore, haha..

LETS COMPARE TO N8 ONE YEAR AGO

Maybe this is 'normal' for Nokia and Europe. Yeah, that sounds reasonable. Except that I did the same analysis for the N8 launch (more expensive at the time than the Lumia, with far less marketing support a year ago) and guess what. In Europe, 22% of European consumers who bought Nokia smartphones in Q4 of 2010, selected an N8. This is not a question of price, it is not a question of touch screen form factor or anything - the N8 won awards in Europe as phone of the year etc. No. The Europeans know what they like in a smartphone, and the Lumia 800 fails them. Don't take my word. The tech writer at Guardian in Britain said he's returning his Lumia. The Germany newsweekly Der Stern advised its readers to drive to Switzerland and buy the N9 with MeeGo instead of the Lumia. In Finland Tietoviikko is just now full of complaints about what all is wrong with the Lumia. Etc. This is a dead phone. Do not delude yourself, the Lumia (and Windows Phone) will never be a success. The sooner Nokia accepts the facts, the sooner Nokia can pursue some other path be that Android or MeeGo or whatever.

WHAT ABOUT THE N9 NOW?

So we have the numbers on the N9 at about 1.75 million units sold in Q4. Those are spread across five of the six Nokia regions and very splintered. We can calculate that the average market share of the N9 sold in all the countries where it had launched, was 3%. This is quite impressive as it is significantly more expensive on average than the Lumia pair, and sold in mostly countries of far lower income levels than the mostly very affluent European and Asian countries where Lumia launched. But still, it is an imperfect measure for sure.

The only region where we have otherwise very solid numbers, that this can be used, is China. The N9 launched in China. And as it alone forms more than half of the total N9 launch country footprint, we can use the 3% as a reasonably accurate measure for the China market and do a similar analysis. For China Nokia smartphone market share, we obviously can use the whole China market. So out of about 37 million smartphones sold in China in Q4, Nokia sold 4.5 million units and achieved 12% market share. When we calculate 3% out of the China smartphone market of 37 million, we get 1.1 million units of N9 smartphones. How many is 1.1 million N9 MeeGo devices out of Nokia's total China smartphone sales of 4.5 million? Yes. 24%

So in China, where incomes are far lower than in Europe, and for the N9 which is more expensive than the Lumia phones, when a Chinese smartphone salesperson has gotten a customer to buy a Nokia, in one case out of every four, it is an N9 !!!!

A year ago, Nokia's genuine flagship smartphone, on Symbian, N8 achieved 22% of every Nokia sales in Europe. Now in China, Nokia's current genuine flagship smartphone, the N9 on MeeGo achieves 24% of every Nokia smartphone sales in China. But the Lumia 800, the fake flagship, on Windows Phone, achieves only 8% of Nokia smartphone sales in Europe. What is wrong with this picture? Is it just me? Or is the mathematics not compelling.

And don't take it from me. Think only from the angle of the sales rep. These premium smartphones carry higher commissions of course. So. With the N8 a year ago, if a sales rep saw a customer walking into the store asking about Nokia, in more than one case out of five, the salesguy achieved a sale of the premium N8. Today, if a customer walks in, in an N9 country, and the customer asks for Nokia, in one case out of every four, the sales rep gets a sale of the N9! But in the Lumia countries, if a customer asks for a Nokia, the sales rep has to push the Lumia to 12 customers who all will buy Nokias, to find one willing to take the Lumia. This is an utterly lost cause. The sales reps are nothing if not money-driven, and they learn very soon what is futile sales. They learned in Europe already that the Lumia is a dead dog. They are learning it now in the early Asian markets and the US sales reps are shortly learning that on T-Mobile and AT&T as well. If you have to push the device to 12 promising customers and 11 of them refuse the model, but accept the brand, you very soon find out what other (Symbian OR MeeGo based Nokia branded) smartphones those customers would rather prefer. Salespeople are not stupid.

11 OUT OF EVERY EVERY 12

So moral of the story. 11 people out of 12 who buy Nokia smartphones in Lumia massive marketing launch countries, will refuse the Lumia and pick another Nokia smartphone instead. And don't forget, we already lost 45% of those Nokia loyal customers who had the Nokia preference before. So if a customer walks into the store holding a Nokia phone, nearly half won't buy a Nokia anyway (if the options are what Nokia now is offering).

So the reality actually is, that out of any customer who currently owns Nokia and wants to buy a smartphone - and will probably look at a Nokia (and compare to iPhone, Samsung etc) the sales rep has to take the time to push the Lumia at 21 existing Nokia customers to land one Lumia sale. But Samsung and the iPhone were selling about 25% total market share - so half of the buyers of smartphones will be happy to buy either an iPhone or a Samsung. What do you think the sales rep will show when the customer mentions 'Lumia'...

(and Elop has to be fired, he is incompetent) 

UPDATE APRIL 11

For anyone still reading this blog, Nokia just issued its profit warning today and I have commented on it and crunched some numbers. The Q1 Lumia sales were disasterous too, at only 2 million - which means that as China had its New Year's gift-giving sales and the iPhone 4S had severe launch problems (some shops shut for several days fearing riots) - the N9 may have outsold all Lumia also in Q1. Read my view of the Nokia Profit Warning and why things are even worse. 

Comments

[Hoista]

The numbers maybe accurate to within 100K, but the insight is misleading. 92% is only correct if the Lumia was available for the whole of Q4 to those 7 countries in question. Otherwise a % of those sales would have been made when Lumia was not available.

[Peter]

why do the 45% of nokia previous consumers refuse to take any nokia phones?
it is not because of the bad features or tastes of symbian^3 but because nokia CEO told the world they are obsolete and will stop service within a few years.

this CEO Elop is NOT an idiot but simply a WS criminal on secret mission to destroy nokia from inside.

[cycnus]

i think we might see a suspend in nokia share after the next quarter ending (Q1 2012)

[Vikram]

Tomi...lets assume that Nokia didn't have Elop and made the transitions in the manner that you described. Do you really think that Nokia wouldn't have tanked anyway?

My point is that Nokia's marketshare that you pointed to before Elop's burning platform memo was a mirage. It wasn't going to hold up.

This is the exact same issue with Blackberry. If you looked at their numbers in late 2010 or 2011 at the same time Elop made his switch, you would think that everything was ok...when in fact it wasn't ok. Their platform was inadequate and so was Nokia's Symbian and Meego platforms. It was going to crash anyway.

Put it another way...if Nokia acted the way that you wanted them to, what do you think would have been the differences in sales between what they did and what you wished they did?

I expect that it would not have been much different...their technology platform was inadequate, as was their content and developer ecosystem. The same thing would have happened - as it happened with Blackberry.

[jo]

@vikam blackberry is holding up and blackberry have terrible hardware anyway
now nokia with android ir meego it would have more chances than with windows phone

[elm70]

@Peter

Elop is a Criminal, Jorma is his first partner in the crime, and the board is also supporting the criminal path. The owner of the crime are the american funds that control Nokia since a while.

@Tomi

The Elop criminal act is visible since 11.2 ... why nobody in Finland move a finger ?
I know you are stating since June (maybe earlier) that Elop need to be fired ... but you are the only Finish voice that is shouting from far east ... in Finland, is looking like people still believe in Santa, and whatever no sense is said by Jorma or Elop is believed by the mass.

Anyhow ... FIRE ELOP IS TOO LATE ... it was already too late in March 2011 ... he immediately outsource Symbian, drop QT, and leave MeeGo .... there is no way back anymore for Nokia.

Only hope is that finally Microsoft can make a decent OS for a smartphone, it never manage to do anything in the mobile world, even if Microsof is there since day one, since 2002 Microsoft is failing to sell their terrible mobile OS, so for Nokia is needed a miracle for survive

Not only Microsoft was bad in the mobile world, but even Palm was easily able to make better OS for PDA, compared to the Windows CE stuffs ... so their track of bad OS for PDA, Mobile device is since ages ...

Tchuss

e_lm_70

[Alex]

Your article needs a 'tweet' button :)

[cycnus]

@Elm,

I also think it's already too late for nokia for turning back if they fired elop now. First Sendo, now Nokia, Microsoft is really criminal.

[Sander van der Wal]

Wouldn't it be possible that most of Nokia's remaining customers simply found the Lumia 800 too expensive?

Nokia has always been selling more cheap Symbian devices than expensive ones. So, if you want to compare the Lumia succes with Nokia's customers to that of earlier high-end Symbian devices, you need to check whether the proportion of high-end sales to low-end sales is now very different with the Lumia combined with the remaining high-end Symbian and MeeGo devices, compared to the cheaper Nokia smartphones.

In other words, following this line of reasoning, Nokia's old communicator range was also a disaster, because most, almost all of, Nokia's smartphone customers bought something much less expensive.

I agree that Lumia did not capture the mind of a large proportion of the high-end buyer market, but that was to be expected.

[Artem Marchenko]

Lumia has big troubles, indeed, but it's 8% of Nokia smartphone buyers in *whole Q4* who bought Lumia. If you take into account only the weeks when Lumia was actually available, percentage will go higher. Not to N8's 22% probably, but maybe to some 12-15%?

The biggest pity though is that Nokia isn't willing to sell N9 in many countries. Even if it's an experiment not to be continued (as Elop pushed and he seems to be extremely uneasy reversing the decisions) why not to run the experiment on a larger scale if it brings good money?

[janne]

Where did you got the number of N9's sold? You are telling that 1.75 million N9 is sold in Q4, which doesnt sound possible, it is way too much. Any RELIABLE source for that?

[Bob Shaw]

It would be interesting to find out how much was the cost of Symbian to Nokia. Market share is important only when a company can extract some acceptable level of profits out of it. Nokia had 6000 plus employees supporting Symbian. I don't know if so many employees are needed to support an OS. Some benchmark with iOS and Android would be useful.

Having said that, a large company like Nokia should also be able to support multiple OSes provided they are profitable. I think Nokia should create a separate unit for Symbian within itself similar to Maemo and support it to the level of its profitability.

[cycnus]

@Sander van der wall

there might be a couple of scenario:
1. the nokia user that using nokia because it believe nokia rule, already left. the one who doesn't want the symbian because already accustom too.
2. Nokia think that lumia 800 were the high end, but when user see the specs, they think other phone were better in that price range.
3. WP7 phone sucks, and user know it.... as easy as ABC.
4. Microsoft need to triple their advertising money. Perhaps giving as much as US$ 50 to the sales person who manage to sell the phone.

[cycnus]

@Lee

Samsung is not coward because it's not in big denial. Nokia Elop is coward because he's in denial and has something to hide.

[vladkr]

I read Nokia Q4 report, that was a bit painful as I'm not an economist, but there is one little sentence I particularely appreciated on page 4 :

"Nokia believes it is currently not appropriate to provide annual targets for 2012 mainly for the following reasons: (...)"

Is captain lost in the middle of the ocean? He doesn't know where to go, does he?

I remember a training program I made in Finland in 1999, where Nokia presented it's view of Nokia (and mobile technology) for the next decade; not only they did the effort, but most predictions appeared to be actually right. What's happening now?

I'm not a fan of MS, and even less of Windows Phone, but I can undestand WP can be a part of a strategy, not the ONLY strategy.

That's as if McDonalds decided to promote salads (Windows Phone), over their best selling Big-Mac (Symbian). Both can be offered, but salads won't ever replace big-macs.

[zlutor]

@cycnus: pro or contra? :-)

[cycnus]

@vladkr.....

agree with you. Instead of transforming symbian user to WP7, elop should capturing those android/iOS user with BOTH symbian and wp7.... in other word.... what elop did is for microsoft best, not for nokia best.

@zlutor
Lee were trying to discredit tomi when he said samsung were a coward too because tomi said Elop doesn't give actual number on lumia and N9.

I said it's different. In nokia, elop were changing the course of nokia and want nokia only to serve salad (i mean Windows phone). Therefore, he need to show how's he's strategy effecting Nokia.

In Samsung, the CEO were trying to sell anything they could. So, if the WP sales were bad, it won't affect samsung, as samsung still have the galaxy line up, and the CEO doesn't say the galaxy line up were burning on fire.

It would be great if samsung open their number, but samsung is not in denial/problem. So Lee argument is invalid.

[Joe]

For those curious about the 'Der Stern' article that Tomi keeps referencing, check the link below or run it through the translator of your choice in case you don't speak German:
http://www.stern.de/digital/telefon/smartphone-nokia-n9-exotisches-one-hit-wonder-1770646.html

[ej victor]

How do we account for deversions? As a U.S. customer my Q4 purchases were an E7 and an N9 - neither were USA variants (All Symbian phones stopped being sold in USA by Nokia before Q4)... My point is that a TREMENDOUS amount of N9's were devireded from "poor" countries and sold to the technorati in developed countries.

[sovatar]

Vikram wrote: "...lets assume that Nokia didn't have Elop and made the transitions in the manner that you described. Do you really think that Nokia wouldn't have tanked anyway?"

Many here agree that Nokia pre Elop was extremely poor in execution, it took too long to bring new devices to the market, integration was bad, etc, etc. However, their QT strategy was sound (Something what no one can proof, but there are very string indications that I am right).

Many here agree that Elop was brought in to fix that execution. What he did was changing the strategy, betting the horse on a proven dud (WP phone has what, 1% market share after more tha a year and extreme promotions?). And Elop's execution of the change is beyond bad.

Pre Elop:
Nokia did the right things wrong.

With Elop:
Nokia does the wrong things wrong.