Spin and Sin: Why 37 Million Lumia Number Spells Disaster for Nokia (but not for MIcrosoft)

Remember all that BS written about the Nokia and Microsoft partnership and the supposed 'third ecosystem' we heard from several big analyst houses in early Spring of last year. The sheer baloney that Nokia would somehow achieve 20% or more in market share with smartphones running the Microsoft Windows Phone OS. I was on this blog pointing out that those were utterly implausible projections, and they were made when we had no data yet of how damaging the Elop Effect had been, ie before even Q1 results were out from Nokia.

Now, finally, eleven months after the Elop Effect, we have the first new projection of Nokia and Microsoft partnership success, by a major analyst house, that was released reflecting the performance of Nokia Symbian smartphones and various Windows Phone smartphones in 2011. The major study out today is by Morgan Stanley, that projects specific annual performance for years 2011, 2012 and 2013. Their slide is on the All Things D blogsite at this link. I have recreated that slide here, as I want to make some points about it.




First. The story is being reported in many news outlets as supposedly 'good' news for Microsoft and Nokia. They celebrate that Nokia and Symbian will sell about 37 million Windows Phone based smartphones this year. Yeah. The Spin Doctors are at it. Those who are writing about it, have no idea what the truth is out there and what is the relevance. 

Secondly, please note that this January 2012 forecast for Nokia smartphone sales (Symbian and Windows Phone) is eerily similar to what Horace Dediu wrote at his Asymco blog and I wrote on this blog - forecast for 2012 is here and forecast for 2013 is here. The point is that both Horace and I wrote those forecasts in February 2011. It took the big analyst houses this long - eleven more MONTHS - to come to the same view as we did back then? 

Here is the big picture. First. Nokia smartphones grew from 2009 to 2010 at a rate of 47% per year, powered by its new flagship phones like the N8 and what many call the obsolete Symbian OS, that released its latest version for Q4, called S^3. So what did Elop do? He replaced 47% growth in unit sales, and growth in revenues and giant growth in proftits in his smartphone unit, by causing the Elop Effect - and crashed Nokia smartphone sales.

The reasonable view to Nokia's future for 2011, when viewed in December 2010, with highly successful Symbian S^3 based phones like the N8 that was rated one of the year's best smartphones - is that the growth that Nokia saw in 2010, would continue roughly at the same rate in 2011. If Elop was a reasonably competent CEO, that is what he should be able to achieve? So Nokia should have sold 147 million smartphones last year and made a huge profit out of them. That would not have been growth at the rate of the industry, so Nokia would have lost some market share but it would still tower over Apple and Samsung for the full year, easily. Instead, Nokia will sell (according to Morgan Stanley projection) 77 million smartphones - meaning that Nokia voluntarily abandoned 48% of its market with the Elop Effect. (my forecast for Nokia Q4 is a bit lower than Morgan Stanley but until we get the official numbers, lets go with their numbers for now).

The Morgan Stanley numbers suggest Nokia market share for 2011 was 18%, for this year 2012 it will be 11% and for 2013 it will fall even further to 8%. That is almost exactly what Horace and I said independently eleven months ago. And note, the Morgan Stanley 2011 projection is consistent with a current Q4 market share for Nokia down to 12%. I think this alone spells utter disaster for Nokia. But it gets worse.

Bear in mind, for the full year 2010, Nokia's market share was 33%. So Elop exchanges a 33% market share and growing Nokia smartphone sales with growing profits, using Symbian, for a massive drop in sales (and making huge losses) and then he can hope to find flat sales into 2013. And if this Morgan Stanley projection comes true, Nokia will have voluntarily thrown away 3/4 of its market share! Thrown away 3 out of every 4 customers it had.

When I wrote that market share projection in February (and July) I was accused by many as being far too pessimistic about Nokia. Now we have the first big analyst house who publishes annual breakdowns of coming sales, that do not support any fantasy of a 20% or better share for the third ecosystem. This 8% market share for Windows Phone is likely to be 5th or 6th among the ecosystems at best.

I don't mind the reporters writing about the numbers for this industry and yes, the 37 million projection is what Morgan Stanley said, and it is very consistent with my view and that of Horace and others. But what I don't like is that it is being spun now as supposedly 'good news'. What good news is there, if you own 33% market share (making big profits) and replace that with 8% market share (making a loss)? For Nokia this is more evidence that the Microsoft strategy is sheer lunacy and a recipe for failure pushing Nokia towards bankruptcy.

The only one who gains out of this is obviously Microsoft who currently have under 1% market share after more than a year of desperately pushing Windows Phone. If they can end with 8% for Windows Phone in 2013, then Microsoft will have bought some time to survive a bit further. But 8% is nothing like the third ecosystem. Not even close.

Comments

[Timo Koola]

This is awful of course if and only if some other scenario would have sustained a better marketshare with profits. Remember that top analyst who said: "undesirable at any price" and "only one in three Symbian customers return to Nokia"? :) Symbian marketshare would have eventually nosedived any way and MeeGo would have not fared any better than WP7 against Android and Google in Europe or USA. In China probably MeeGo would have done better, but for India and Africa MeeGo would've been "too iPhone (no memory card, very high speed data reliant etc.)" and would have done as badly as WP7 will do.

[Timo Koola]

Grrh, hate stupid mistakes on keyboard. "against Android and Apple" of course.

[n900lover]

OK, so we have one desperate assertion that without ms nokia sales would be even worse. What else? Lets wait for the usual suspects.

[Tomi T Ahonen]

Hi Timo and n900lover

Timo - you know very well what I wrote here on this blog a year ago. That blog 'undesirable at any price' makes an EXPLICIT point that it was not caused by Symbian or Ovi 'failures'. And the follow-up blog explores the reasons why, which were later verified by numerous experts agreeing, that Nokia had in fact been buying market share which cost previous Nokia CEO Kallasvuo his job. I also illustrate CLEARLY with evidence why the sudden fall in market share could not be caused by Symbian or Ovi, and also what were causes to it, and how Nokia could return to growth. All the time, I showed clearly that Symbian was not the fault and neither was Ovi and while Symbian was already scheduled to be replaced - the replacement was to be MeeGo.

"Symbian market share would have eventually nosedived" - is completely conjecture and doesn't match with reality. The world's most advanced country, Japan, and the world's most advanced mobile operator/carrier NTT DoCoMo said in January 2011 that it intended to continue using Symbian as the operating system for its phones - the most advanced phones on the planet. It was not until Elop announced Microsoft on February 11, that DoCoMo immediately reversed its commitment to Symbian and decided to switch to Android.

As to MeeGo, we will probably get some info when the Q4 results come out, and can compare Lumia and MeeGo side-by-side. The gossip from the market suggests the N9 has sold extremely well and Morgan Stanley for example expected 1 million MeeGo sales. Other analysts expect something like half a million Lumia. So Lumia sells in Nokia's best markets and many of the world's biggest smartphone markets, with massive marketing push, while N9 sells in tiny markets and markets often of low income levels, costing more than Lumia 800, and with minimal Nokia marketing effort - and may actually match or even outsell Lumia. Lets see what the evidence is, but the gossip I hear says the N9 and MeeGo have been a success, inspite of Elop's utter lack of support to it.

As to Africa, India etc - the clear strategy with MeeGo was to roll Symbian down into lower cost smartphones as MeeGo started to replace top-end smartphones. So it would have been Symbian sales in India, Africa etc - where Symbian is still the bestselling smartphone today, almost a year after the Elop Effect.

Timo, you and I clearly disagree on the view, but I am certain that if Elop the new CEO would have given his full support to MeeGo, released at least the N9 and N950 to all Nokia countries and carriers, it would have done sales better than the N8 and S^3 did a year ago. The ecosystem is nowhere as solid on MeeGo but apps and the OS are not in the top 4 things people look for when buying a smartphone. If Elop had supported the Qt migration path, by now we should have a good and rapidly growing family of Qt apps that run on most Nokia phones.

Maybe we will see some MeeGo stats to prove some of that, maybe not. But we will see Lumia performance and if all prevailing evidence is telling the truth - including yesterday the stats from the UK that Lumia didn't make it to the 10 bestselling smartphones even in the Christmas period sales when the marketing push was the heaviest - then the Lumia strategy is doomed.

n900lover - thanks.. cheers!

Tomi Ahonen :-)

[gzost]

Equating the N8 with Symbian^3 is a fallacy: the N8 has the outstanding camera as a main selling point (plus, to me at least, is one of the best phone designs in recent years). Even with that, review after review of this (and to a degree also the other Symbian^3 handsets) noted that the hardware was nice, but let down by the software. So yes, Symbian was a factor in the market share loss. As has been pointed out before, customer satisfaction with Nokia smartphones was catastrophic - and the big losses started to come just as the generation of buyers that had bought a S60 5ht edition were upgrading. The initial release of the 5800, and the entire lifetime of the N97 did a lot of damage to Nokia.

Symbian being used in Japan has always been a red herring, and the numbers would have been much clearer if none of the devices here had been counted as Symbian handsets. Symbian has only ever been used here as the basis for extensive operator modifications, in effect leading to super-high-end featurephones, or phones that accessed different application markets from the rest of the Symbian world. The contribution from this was financial towards the development of the OS, but it otherwise did not contribute to the larger ecosystem.

As to whether apps are all that important - I do think that the demise of Symbian and the rise of the importance of apps go hand in hand. Smartphones are used more today than they used to be, and for a wider variety of tasks and application. True, most consumers only have a small number of needs, but taken together, the variety is huge. The bundled functionality just can't cover it all - there need to be ways to extend this. The mobile web hasn't progressed quickly enough, so that presently native apps still have big advantages in usability. For a lot of functionality, they are the only way to got (e.g. access to a phone's camera). Symbian failed regarding native apps. For an overview of this, take a look at these two recent AllAboutSymbian articles (http://www.allaboutsymbian.com/features/item/13966_Symbian_vs_Android_app_for_app.php http://www.allaboutsymbian.com/features/item/13953_Symbian_vs_Android_app_for_app.php), which match popular Android apps against Symbian equivalents. And no, the situation wasn't any better a year ago.

I wish Symbian could have been updated quickly enough to stay competetive. I wish the Ovi services had taken off. Nokia planned for a truly well-rounded set there. But wishing is not enough. They screwed it up long before the February announcement. 2011 and 2012 were bound to be a fight for survival post-Symbian all along.

[DS]

Nevertheless nobody can ascertain that Nokia would be in such dire straits if it continued to fully stand behind Symbian and QT ecosystem (adding WP7 to the mix or not).
Symbian would still be loosing ground but with say 25% at the end of 2012 Nokia would still have much more options that today, not mentioning that Belle is getting much better reviews (than S^3) springing back to competitiveness and newest line of Symbian phones like Nokia 500 is doing good job competing with Android and Bada on the middle-lower end (despite being obsoleted by its creator).

[Timo Koola]

Couple of comments: yes, 2011 was the worst possible for Nokia mainly because of the public execution of the Symbian before replacing ecosystem was in place. That was totally unnecessary. What I commented about was 2012 and 2013 and even beyond. (added note: WP7 was a mistake in my opinion, but abandoning MeeGo wasn't).

There are several things speaking against long term sustainability of Symbian (I know Tomi disagrees, and I am happy to agree on that. I love your blog even if I don't always agree with you):
* Deteoriating brand (both Nokia and Symbian). Nokia wasn't number one in people's mind when they thought of smartphones even before Feb11. It is really hard to win long term if people are not proud to buy the brand.
* Expensive R&D combined with much longer product cycles than the main competition from Android (on all price points). Companies like Micromax or G'five can push multiple product generations in time it takes Nokia to turn around one generation of Symbian devices. Eventually even the bad copies get good enough if you are that much slower. (as far as I can understand this is the number one reason for abandoning Symbian)
* Extremely aggressive competition pushing down the price point where Android is a clearly better choice than Symbian. Fall 2010 that price point was may be around $400, nowadays it is just around perhaps $150. In a year who knows, but definitely sub $100. At some point competitive Android handset would have gone below the price Nokia can sell Symbian devices profitably and then market share would have started working against them (as everyone knows you can't fix negative margins by selling more :)

I would argue that this point would have been reached at latest during 2012 in any case. Would MeeGo really have been in place that day in all price points? And would MeeGo seriously have been considered as viable contender to Android?

[Earendil Star]

@ gzost

Nice story, but facts are against your theory.

The good reviews by the specialized press, apart from being mostly rigged, have nothing to do with success or not of a specific product.
If we should go by these reviews, everybody should only have iPhones and WP, and would be disregarding the rest.
In fact, market was dominated by Symbian before and is dominated by Android now, despite negative reviews, while WP -up until now at least- was practically inexistent.

Fact is that Nokia was able to sell well regardless (or despite, if you prefer) of having Symbian as its OS.
The plunge only came in Q1 2011, under the THT Elop tenure and after his leakage of the notorious "Burning Platform Memo".

Sadly, THE REAL BURNING PLATFORM WAS WP, not Symbian.

If MS had not played its cards as it did, stealthily reducing Nokia as its captive Smartphone OEM, WP would be dead by now.
Instead, WP can now capitalize on Nokia's firepower, especially on its worldwide and pervasive carrier & distribution network, plus its brand recognition.

Insisting that Symbian and Ovi were unsuccessful is contradicted by all sales figures up to Q4 2010.
Pure propaganda, to support the MS covert takeover of Nokia.
Such as the myth that Nokia was strong in hardware and weak in software.
It is just useful to MS to say that it is combining the best alleged HW (Nokia) with the best purported software (WP).
Truth is that in its heyday, Nokia was appreciated because it offered the best HW + SW combination (i.e. best UX).

So, ok, MS won, Nokia lost. But please stop pretending that the current outcome is best for Nokia.
On this point, Tomi is absolutely spot on.
No way Nokia will be ever able to be as successful and profitable as it was, being now reduced to a simple monopsonist OEM.

****

On a different note, does anybody know if the Lumia 900 will still be manufactured by Compal, or will Nokia start to use its own plants again?
Would be interesting to know.

[EK]

Rest assured Tomi, Nokia is not going to publish sales numbers for individual phones. Especially if they are unfavourable to Lumia.

Lumia development and launch happened lightning fast on Nokia scale, it has been a huge stretch. There may have been both lack of manufacturing capacity and components to try anything bigger on Q4 as "things happened so fast".

There is some rumours that N9 has LG's AMOLED panel. If that is true it could never have been sold in many millions/quarter, LG produces only around 500 000 panels / month according to e.g. OLED-INFO.

Nokia was already losing market share on Q4 2010, S60 was turning obsolete in OECD countries. Symbian 3 phones were propably seriously constrained in components and could not have turned the tide on 1H2011 even if they had been as desirable as you seem to think (you did not like E7 btw which was the only new sales available for some months during 1H ...). Then the Elop affect, costiest info session ever. Bad was made to much worse.

ps. Nokia currently says that there is around 40 operators selling Lumia, so I'm wondering how does the MS+Nokia boycott happen ?

[Ste]

The slide does not look so bad. Take 2010 as an anomaly (wasn't that the year you said Nokia was buying market share?) and you get two product cycles: Yellow replacing blue while holding the total steady.

[Tomi T Ahonen]

Hi gzost, DS and Timo

gzost - your argument makes a lot of sense - and seems logical 'customer satisfaction with Nokia Symbian phones was catastrophic' - but that does not square with the facts. For example the Right Mobile Phone survey of UK smartphone market in the spring of 2010 - before the N8 - found Nokia the highest customer loyalty in Britain - a neutral market where none of the big handset makers is the domestic maker. It sounds good to say customers hated Nokia - and to some degree that was true in the USA where carriers did not release Nokia's best phones - but in Europe and Asia it totally was not true. Please gzost, use facts don't give just your opinion.

As to Japan? Why would it not 'contribute to the ecosystem'? The sales process is different - but if you get onboard with NTT DoCoMo you get tens of millions of sales rather than a few thousand. Its exactly the same as the Blackberry enterprise apps ecosystem - long sales cycles but if you get sales, you sell in massive quantities.

I totally agree that in the short term apps are a better way to deliver customer experiences for many uses, than the mobile web. I believe the mobile web is the obvious long term winner (And most experts now hold that view, especially if we include 'cloud' computing in the picture) but regardless, if your point is for Symbian and Ovi to be competitive - Nokia just announced their daily downlaods now, almost a year after Elop Effect - they are doing (Ovi) downloads at 4 billion per year level - clearly run-away the third biggest ecosystem behind only Apple and Android. Tons and tons ahead of Microsoft either platform, or Blackberry, Palm, bada, Limo etc.

DS - totally agree. Yes, Nokia was headed downwards in 2011 in market share, but with still growing sales and all good news on EVERY front from better handsets, better OS version, better number of apps, better app downloads, and increasing average prices and good customer loyalty, Nokia would have done ok in 2011. 25% is reasonable and that was before N9 and MeeGo launch.

Timo - haha, yeah. Actually you know you and I don't disagree that much on the main points. But yes to your comment. Deteriorating brand, I totally agree. With Symbian Nokia was propping up a horse about to die. It needed MeeGo as soon to the market as possible to restore Nokia's leadership image. I also agree with expensive R&D and the long delays in deliveries. As you know, that was part of the 'execution' problem that I have accused Nokia management of long before there was an Elop in charge, and I welcomed the early words from Ollila that Elop would address those points.

I also agree that MeeGo was definitely NOT the answer to low-cost smartphones, but for the short-run, Symbian was very well suited for that, as Symbian runs on far less demanding hardware than Android or WP7 or MeeGo or any rivals, except bada. Yes, over time Android would rush to meet at that point, but the average price of Android handsets was more than twice the average price of Symbian smartphones last year. In the longer run, Nokia would need the low-cost sister to MeeGo (ie Meltemi, also based on Linux) but for 2011 and 2012 and into 2013, Symbian would run Android very competitively for low cost sub 100 dollar smartphones, while delivering reliable Nokia user experiences, so even where some Symbian clumsiness might not appeal to tech reviewers, the Nokia users were familiar with those aspects and would put up with them, if the iPhone is beyond reach in terms of price.

I do think, Timo, that for example what Der Stern wrote about the N9 and MeeGo just some days ago, that Germans should drive to Austria or Switzerland, to buy the N9 rather than a Lumia 800, says tons about how competitive the N9 and MeeGo is. Its not perfect (but is getting an update now) but it is the best opportunity for Nokia to fight on semi-equal footing with iPhone and Android at the top end. We will see more, as now Lumia starts to launch in MeeGo markets like Finland, China etc. I bet you that most reviewers rate MeeGo ahead of WP7 and if so, Nokia is truly crazy for not pushing MeeGo now globally, while it still has what customers perceive as a quality edge.

Thanks for writing

Tomi Ahonen :-)

[Herman van der Blom]

I have one and that says it All. You know why? This phone and other WP7.5 will sell by itself. Its easy to use, phone-functional. Wp7.5 needed Momentum. Sell enough of it that people can compare by themself. And if they do that they will see its better then IOS and Android. That compared with the build quality of Nokia is a winning combination. Now it only needs time. Time that even the worst (and that are for now the most) reviewers and analysts (because they own iphones and Androids so are not objective) are convinced of the succes of wp7.5. The best way to see the light is USE ONE. I already have used different types of phones but wp7.5 can convince people not because of advertising but of functionality. The only negative thing that comes back is it can be boring. But thats mostly the point for tech-freaks. They need Android. And people who bought lots of stuff from Apple are bound by there ECO platform. But for all the happy other people they have a choice :-)

[rustyknight17]

Tomi , mostly agree . That said , I don't see wp as Nokia's salvation ( MS's maybe .. ) , as an IT friend put it , it takes 3 years to work enough of the bugs put and WP just isn't there yet . Six months from now , maybe , but it's still immature , seriously late to the party , and too many other OEMs . Plus , it really says a lot that my Nokia 701 , in terms of features and capabilities , is clearly superior to the Lumias ...
And what's withthis whole Symbian is dead thing ? Noiia has repeatedly stated that it will continue to support AND develop ( including new phones and at least 2 more updates ) Symbian at least until 2016 . After that , as Elop put it , if Symbian is profitable , Nokia will keep on supporting and developing it . Moreover , Belle is every bit the equal of iOS and Android ...
I believe that Nokia needs to fire Elop , so it's interesting that there r rumours that Elop is leaving at the end of 2012 . Also , there seems to be a strong faction within Nokia favouring the Symbian / Meego strategy and against the wp strategy ..
One final thing about Symbian's profitibility . Symbian 3 , despite Elop's memo , has done quite well ; the N8 ALONE has sold 10 million units and that was back in October .Even the X7 has done pretty well. Need I say more ?

[ノースフェイス]

離れる前に、もっと大げさな子供が単語を落とした：私はそれは臭いチェスを再生するには、あなたのユニットを来ることはありません！

[Onitsuka Tiger]

I rolled my eyes. "Grandmother, many people like it that way."

[グッチ]

　同局によると、運転士は１月２３日午後３時１０分ごろ、終点の大正駅で乗客を降ろし、引き込み線に入って停車した際、運転席の窓を開けてたばこを１本吸った。その直後に折り返し運転を始めたが、途中で乗客から「たばこ臭い」との苦情を受けて発覚。運転士は「眠気を感じて吸った」と話しているという。

　新谷和英局長は「たばこの火であっても大きな火災につながりかねず、防災や安全意識の徹底を図りたい」と陳謝した。

[Felipe]

I would buy a MeeGo phone anytime if it wasn't a dead platform. I will never, ever, in my life buy a Windows Phone 7 smartphone which has only this crappy .not monopolist crap from Microsoft as development environment. People want to write native code which is fast, flexible and compatible with other devices. Android and the iPhone allow native code, why only MS is against it? To monopolize, micro-manage and control as always.

[cheap nike air max]

What good news is there, if you own 33% market share (making big profits) and replace that with 8% market share (making a loss)? For Nokia this is more evidence that the Microsoft strategy is sheer lunacy and a recipe for failure pushing Nokia towards bankruptcy.

[ashok pai]

Nokia could have sold N950 - the most beautiful and awesome phone qwerty ever designed! but , not to be, thanks to mr. elop. it's quite obvious that wp7 is a work in progress and they will be one until another year at least with further iteration. now, this brings a question to a buyers mind, why should i buy a work in progress ? without customers buying more wp7 phones, the company wont have money to launch version 8, and the customer does not have any compulsion to buy a work in progress , when they have multiple choices at every level and budget from android, and if they want a well rounded product without choices - they have ios/ iphone.

either ways nokia/ microsoft combination seems to be an odd choice for buyers - especially since people want to buy a smartphone every 18-24 months. if Nokia/ microsoft can ride and survive until end of 2013, then there is some hope.

[ルイヴィトンバック]

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