So the Nokia brand returns.. with a Vengeance

Ah, that was fabulous news to discover when returning online after two days out of coverage. All readers of this blog already knew what I just discovered.. And let me say that essentially all you ever wanted to know about how will this new Nokia deal work, and the sensible analysis about it, is already on this blog, but written by my readers in the comments section (thank you!). I don’t really need to write my own analysis, I could just quote my regular readers.

What is the deal. Microsoft quits its disastrous play into handsets via the purchase of the Nokia handset business. After firing most of the people they brought in, now part of the remains are sold, kind of, back to Nokia. The hopeless venture into ‘Lumia’ brand and Windows based smartphones will be terminated and some of the resources Microsoft had acquired will transition to the Surface tablet (and phablet) business. The end of this to Microsoft branded consumer handsets is going almost as totally a catastrophy as Microsoft’s previous attempt when they bought Danger who had been making the highly popular youth phones branded ‘Sidekick’. Yes, obviously, its also exactly as I predicted when the Nokia-Microsoft sale was announced in 2013, and what I reaffirmed when the deal was completed in 2014 and reminded that Microsoft handset venture continues to be dead, last year in 2015 when Microsoft fired Stephen Elop and gave this project one last chance.

There was that rumor a few days ago that Hon Hai aka Foxconn (makers of iPhones) was buying the remaining Nokia business from Microsoft. I wrote my initial analysis of that rumor. I also argued that it would make sense for Microsoft to sell the remaining ex-Nokia handset business back to Nokia (instead of Hon Hai/Foxconn). I pointed out that Nokia was already coming back to smartphones and Nokia could/should be able to make this loss-making unit turn back into a profitable and growing business (part of Nokia’s core competence is to turn loss-making telecoms businesses back into profits, see Siemens and Motorola networking businesses, plus now the project with Alcatel-Lucent). I speculated that if there now was a deal in the works with Hon Hai/Foxconn then there must have been at least serious talks between Microsoft and Nokia. As the new CEO of Microsoft, Satya Nadella was not involved in the Nokia purchase (that was done by ex-CEO Steve Ballmer) there was no personal reputation or political investment in that decision. Similarly, Microsoft had already written off the total purchase in its accounting books last year, so the sale of the handset business could be done without a penalty in an accounting/finance sense.

Obviously as it turns out, there had been talks with Nokia and the deal is a complicated three-way (four-way) deal where part of the ex-Nokia business is sold to a new Finnish entity, HMD, which now acquires Nokia handset branding rights from Microsoft and handset design aspects. Meanwhile Hon Hai/Foxconn has set up a company called FIH, which will acquire the ex-Nokia featurephone factories, and handset sales and marketing from Microsoft. Because Nokia already had by the original sales contract from 2013 the rights to return to sell smartphones now, this new partnership of HMD and FIH will become a Nokia brand full portfolio company, designing, manufacturing, marketing, selling and distributing smartphones, dumbphones and tablets under the Nokia brand (exclusively) and using what remains of the original Nokia design, manufacturing, marketing, sales and distribution of ‘original’ Nokia. The part left out is Windows smartphone OS and it will be replaced (we all rejoice) with Android. Nokia retains a licencing agreement with this partnership ie the Nokia brand and some share of its market success, without taking much of a risk in two very volatile businesses.

WHY THE DUMBPHONES?

The traditional handset business (dumbphones aka ‘featurephones’) was a 1 Billion handset business sold annually a few years ago but last year sold only 500 million and this year will sell 400 million and the business will be down to near zero handsets sold by year 2020. A dying business, where Nokia’s brand even under Microsoft ownership was still holding a large market share and fierce loyalty among loyal customers in mostly Emerging World countries from India to Nigeria. Nokia brand offering in ‘featurephones’ extended to near-smartphone class with the Asha series of dumbphones that had good cameras, touch-screens, 3G and WiFi connectivity and of course the full internet; they even could take apps that were written in Java such as Angry Birds, Facebook etc. Before then-CEO Stephen Elop (worst CEO in any time among any Fortune 500 sized company in any industry) decided to destroy the Nokia handset business the Nokia handset business was vibrant, highly profitable, growing faster than Apple’s famed iPhone business (yes, its true) with high customer loyalty and a powerful sales and distribution asset.

Stephen Elop (did I say, worst CEO in history, of any industry) did yes destroy the goose that layed the golden eggs. He did that to collect a bizarre bounty on his CEO contract which ended up being an incentive for demolishing the most profitable part of Nokia’s business). A key point to note, was that Nokia was the best among ‘legacy handset manufacturers’ (handset manufacturers who sold both dumbphones and smartphones, as distinct from newer handset makers who only sold smartphones like HTC, Blackberry and Apple) to MIGRATE its dumbphone customers to smartphones. While Motorola, Samsung, LG, SonyEricsson, Huawei, ZTE and others had to accomplish this tough transition, moving customers from relatively modest-cost and modest-capability phones to full smartphones, the others struggled so badly in that transition that every one of Nokia’s rivals had quarters where they produced losses in their handset unit, and their resulting market share in smartphones was WORSE than the share in smartphones. Nokia (up to when Elop - worst CEO of any industry ever - decided to destroy the business) was the only one of the legacy handset makers to report every single quarter of that transition a profit - and the only one whose resulting market share in smartphones was higher than its share in dumbphones. Yes, Motorola, SonyEricsson, LG, Samsung etc all saw a loss in market share when they tried to move their customers to smartphones but not Nokia. Nokia was able to GAIN market share while executing this tough and expensive transition. And only Nokia was doing that profitably.

So on the dumbphone business, its not a totally dead duck that this new Nokia-HMD-FIH partnership is reacquiring. It is an interesting asset which is actually profitable and still sells in the range of 80 million dumbphones per year, and which is the type of business, that Nokia once was the best in the business, at transitioning to smartphones. Its not inconceivable that Nokia is able to transition all of this last 80 million dumbphone customer base to smartphones in the next 36-48 months. These would be extremely low-cost smartphones of course, but still they would be smartphones. 80 million handsets is a 4% market share of total handset market. 80 million smartphones would have been a 5% market share last year in smartphones, and would put this unit in contention for roughly a 4th place finish in the Top 10. That is IGNORING the top-end and current Lumia etc smartphone potential. This is why this new partnership actually WANTS the old dumbphone unit ‘back’ from Microsoft. They are genuine Nokia mobile phones with excellent market share, a strong global sales and distribution organization and a high volume of handset production in very modern factories, with very competent component sourcing, etc. It is a good foundation to start from.

Note that this ‘dying’ part of ex-Nokia dumbphone business holds about a 15% market share in dumbphones currently and its main rival globally is.. Samsung. But the BUSINESS performance of this unit had suffered from 2011 onwards (Stephen Elop worst CEO ever) and still suffered from bad carrier relationships by Microsoft up to today. This unit could see a modest ‘revival’ in its last years. The Nokia basic phones are very well made, fit their intended customers very well, with aspects such as basic cameras, in-built FM radios, great battery life, etc. Once the ‘anti Microsoft’ attitude by the carrier community and distribution is removed, this unit should achieve its full potential while the HMD-FIH partnership prepared for the final migration of remaining Nokia brand customers to low-end Android smartphones.

ANDROID NOKIA SMARTPHONES

The eagerly-awaited part of this partnership is the ‘proper’ transition of Nokia from dead OS platform Windows to Android. When I speculated on what a pure Foxconn/Hon Hai purchase of the ex-Nokia business from Microsoft might become, I said I expected Foxconn/Hon Hai to focus on low-end and at best mid-price smartphones on Android to gain sales volume, and mostly ignoring the top end ‘flagship’ class contest. I also thought that Hon Hai/Foxconn would not want the actual factories nor the sales and distribution staff from Microsoft which once belonged to Nokia. Now in this new HMD-FIH partnership, essentially ‘the full Nokia’ handset business, of what is left, is transferred in parts to these two partners. Rather than just pursue a large volume low-end business, this partnership will be well prepared to actually ‘compete’ fully for a total smartphone portfolio play. Expect Nokia brand to rapidly return to flagship class smartphones and then several models all the way far far below where day Apple’s new iPhone 5 SE is priced. Because HMD has acquired Nokia design and intellectual property aspects, this new partnership can pursue ‘typical’ award-winning top-end smartphones. But differing from the past 5 years the new HMD-FIH partnership will not be stuck trying to push a dead Windows OS, but rather can thrive using the Android OS (which powers about 80% of all smartphones in use and sold in 83% of new smartphones last year).

I mentioned that Nokia designed a series of 3 ‘X Series’ Nokia Android smartphones in early 2014 just before the handset business was handed over to Microsoft. Microsoft then immediately ended those phones. They were low end smartphones but they did achieve a nice start in sales. They were ‘typical’ low-end smartphones of modest specs. But they also were priced to sell. When we consider the upcoming portfolio, expect several models as updates to those models (and possibly even launching a few of them still now, at lower prices). The more interesting part was Nokia’s R&D project for handsets (and tablets) for Android. That - which is kind of the father of FIH - has already DESIGNED Android based ‘new’ Nokia smartphones, which this unit (while still at Nokia) was hoping to then find a partner like Hon Hai/Foxconn to start to manufacture and sell. In that way, the transition from dead Windows to Android is not starting ‘from scratch’ like it did when LG went through this same process - they tried to go purely Windows first, before admitting its not viable and ended Windows and went fully to Android where most of LG’s rivals had already gone. So we could see (hopefully will see) the first new Nokia Android smartphones relatively soon. I think a Christmas launch of new Nokia Android smartphones is optimistic (but might happen in small volume) but a Spring 2017 roll-out should be very feasible as this deal is now announced in May of 2016.

We then need to think of Nokia and its potential. Apple did not invent the smartphone (in fact the first iPhone of 2007 was not even a smartphone, it was only a high-end expensive featurephone). Nokia invented the smartphone. Some foolish pundits and mostly US based ‘experts’ have peddled the myth that Nokia was somehow behind on the trends in smartphones. Nothing could be further from the truth. Lets take Apple. All major developments on Apple’s iPhone, as announced by Apple both on the hardware to the iPhone and the iOS operating system - all of them - had already existed on Nokia flagship class smartphones - sold YEARS before that latest model iPhone was annoucned. This was true all the way to last year, 2015. Yes, when Apple introduced phablets - Nokia did them in 2013 - and when Apple introduced a mobile wallet Nokia had done Nokia money back in 2010. Nokia had NFC on its smartphones long before Apple, and better cameras, plus a long slew of features, several that Apple STILL has not implemented (such as microSD card slot). What Nokia was particularly good at, was adding features that are popular in the Emerging World from the in-built FM radio, to dual SIM, to the in-built flashlight/torch function. And on the pricing, Nokia had pursued lower-end smartphones long before Apple decided to go to lower-end smartphones. Finally the world distribution, Nokia was in India, China, Brazil, Nigeria etc for years and years before Apple started to pursue those markets. It is simply ignorance to peddle the myth that Nokia was ‘behind’ Apple. As I said, the last year before Elop (worst CEO ever) destroyed Nokia’s handset business, in year 2010, Nokia grew MORE in smartphone business than Apple did. Apple was not CATCHING up to Nokia. Nokia was more that twice as big in market share as Apple’s iPhone - and Nokia was PULLING AWAY from Apple, while Nokia reported its most profitable smartphone quarter just before Elop (worst CEO ever) suddenly caused the total collapse of the business.

 
Nokia knows what handset customers want. Nokia knows what is a smartphone, Nokia literally invented the smartphone. While the original iPhone of 2007 was a revolution (and I said so back then) after that revolution, Apple’s total iPhone strategy was to add features that Nokia had in its smartphones - but on typically a four-year lag. Who was following whom? Nokia knows how to design great phones and to add features and abilities that consumers want and fall in love with. Like now, Apple is rumored to add an optical zoom (aka ‘real zoom’) to its next iPhone, the iPhone 7. It is expected to be either a 2x or 3x optical zoom. Nokia again, has done all that, but when did Nokia do the world’s first smartphone with optical zoom? Nokia did that LITERALLY ten years ago, in 2006. It was the N93. And it was a 3x optical zoom, while Apple might do a lesser zoom now. Or take Xenon flash (aka ‘real flash’ versus the LED flash on most smartphones). Apple still doesn’t do Xenon flash on iPhones. Nokia had the first Xenon flash in 2007.

And Nokia’s massive image sensor, the Pureview with 41 megapixels. The image density was literally the best on planet earth. Literally the largest camera sensor of any camera on the planet, from any camera brand from Nikon to Canon with pro cameras costing 10,000 dollars without their lenses; or any other pro camera including the Hasselblads and the like. And why do I say ‘on planet earth’ - because the only camera sensor even more advanced than Nokia’s Pureview 41mp sensor, when it was launched in 2012, was in orbit, used on US spy satellites which had 64mp sensors. There is much more to camera quality than who has more megapixels, but in terms of image resolution - the sharpness of detail - then megapixels matter. Nokia has still today (in Microsoft’s Lumia) the largest sensor ever put into any cameraphone. Now this FIH-HMD partnership also reacquires that tech, and we can expect more super-cameras on future Nokia flagships. Oh did I mention, the camera function this year becomes the most used feature of any phone, ahead of messaging (and far ahead of voice calls or internet or apps or Facebook or anything else). Who leads whom? Nokia KNOWS how to do great smartphones. What it had, was a bad OS and the sales boycott against Microsoft by the carrier community.

RETURN OF THE REAL NOKIA

So the Windows project was a disaster yes. Nokia had never stopped making great hardware - Nokia even with Windows was winning best phone awards. But the sales and distribution channel was strangling all Windows makers - and all other giant brands left the Windows family by the end of 2011 (yes at one point, 7 of the Top 10 largest handset makers offered Windows smartphones but Windows never passed 12% total market share. Nokia had 29% market share the year before Elop - worst CEO ever - wrecked that business).

Now the remains of what once was the world’s dominating handset juggernaut, but including parts of its legendary design, its overpowering sales and marketing, and its superbly efficent factories, can be ‘released’ from the restraints and constraints of Windows. Now the question is primarily, on how quickly and with how broad a portfolio will this new FIH-HMD make its comeback. I’d love to see the first Nokia Android smartphones this year but lets say they come back in any meaningful way in terms of handsets and their sales reach only next year. Lets say by the end of 2017 Nokia should have at least 5 Android models, maybe something like 8; and including one clear flagship with Pureview camera, Xenon flash etc. That Nokia brand should be at about 3% market share for Q4 of next year. That is four times better than what the same unit, selling Lumia brand on Windows is doing now, in Q1 of 2016. It will be a massive slap in the face of Windows and Microsoft, when this happens.

Then Nokia should be expanding, mostly further down in the price range, but also across more niche markets (I half expect and fully hope for a return of ‘The Communicator’ a full touch-screen large screen flaship class superphone with slider/folder physical QWERTY keyboard, in the style of the Nokia E7 and the N950). Nokia has its own ‘skunk works’ and owns a vast array of patents in the handset and wearable and portable gadget space, we could see many new ideas coming in near-future flagship class phones. But expect most of the new Nokia to be roughly iPhone-a-clones, slab touch-screen ‘generic’ smartphone designs like nearly all of any other Samsung Galaxy or LG or HTC or Sony or Huawei or Xiaomi smartphone that runs on Android. But a portfolio of at least 10 and could be as many as 20 smartphone models by Q4 of 2018 also means a market share well past 5% and Nokia brand fighting for the 4th ranking just outside the Top 3 of global smartphone brands by market share. The last time Nokia had a smartphone market share higher than 4% was in Q2 of 2012, when still more than half of Nokia smartphones sold, were powered by Symbian or MeeGo. The story will be the incredible come-back of Nokia and the damage is likely to be most felt by Samsung but also several of the other current Top 10 brands like LG. I strong recovery by Nokia can well have Sony quit its phone business and HTC and Blackberry to finally fold.

A recovery spirit with the rump-Nokia and its ‘last survivors’ now with FIH-HMD - will power the unit to more heroic and brave attempts and a continuing growth where for 2019 I think Nokia will be challenging Huawei for the Top 3 position. Nokia might be at around 7% to 8% market share which in 2019 will mean something around 135 to 150 million smartphones sold globally. Microsoft sold 21 million Lumia/Windows smartphones in the past 12 months. Nokia’s best year was 2010 when it sold 103.6 million smartphones. But as this recovery-Nokia returns to its ‘natural’ market position as a highly beloved, features-packed, premium phone brand but selling in all markets and at all price points, the fight will get tougher. From 2019 the ‘bounce back’ will be completed and I think its very likely that Samsung will still the biggest smartphone maker and Apple number 2, but the race will be on for number 3 and Nokia as FIH-HMD will be perceived as one of the strongest competitors in that market heading into the next decade. It is great news for all fans of mobile phones and smartphones. It is also great news for Finland and for fans of Nokia. This is pretty close to a ‘best case’ scenario of how Nokia could come back, and yes, we will finally get a full portfolio of ‘real’ Nokia smartphones running full Android. Tervetuloa takaisin Nokia!! Welcome back Nokia !!

Comments

[chithanh]

@Lullz
Maybe you have missed the start of the discussion. It was Manufacturingbig's comment starting with "HAHA what BS."
I was addressing some misconceptions regarding Linux and its development model, and how the players in that ecosystem benefit from each other.

[Tomi T Ahonen]

Hi everybody

Wow 65 commments over the weekend, that is nice. The late discussion has regressed into somewhat typical bickering we often have on this blog but the earlier parts have lots of good comments and debates and questions. I'll do a few specific responses to some of you.

Tomi Ahonen :-)

[Tomi T Ahonen]

So comments from 20 May

Wayne - great sensible views on sustainability of the Nokia return. On the profit level, its true that huge scale and second-biggest profits of industry is how Nokia could afford to do all those innovations before. Now as it starts by a recovery strategy from under 0.7% market share and needs to grow; building a portfolio from scratch where even on Windows, the Lumia model range has become stagnant; and rebuilding a damaged distribution network - a lot of upset past clients need 'wooing' ie taken to restaurants for nice lunches and taken to local games as Nokia's guest etc, to rebuild those relationships - all of that is expensive. And there will not be huge income revenue streams coming in. So its also a tight balance walking forwards. AND the race is far more competitive in the mid-field where the most new Nokia Android smartphones will be sold. Its not going to be easy.

You're right to write that quality costs money. BUT against that, there is STILL a willingness to pay premium prices for Nokia brand, as long as the Nokia brand has in general a competitive product (new models, modern features) and Nokia has a little bit of something extra. That price premium may not be huge, it might be down to 'modest' but it still exists - in the 5/6th of the world where most people live. And that by itself will be what should get this project onto its feet.

Separately is the carrier relationship. The carriers wanted Microsoft out. They wanted Nokia to abandon Windows. They made it very clear in 2011 and kept repeating it in 2012, 2013 (until Microsoft sale announced) then kept repeating it to Microsoft 2014, 2015 and up to now. They got what they wanted. They meanwhile have always appreciated Nokia and its way to deal with carriers. They should - and if they're smart they will - now support Nokia, which they knew is struggling BECAUSE of the carrier boycott. So they will lift the boycott and they will give Nokia early on some extra business, as a reward for doing what they demanded. In many cases it will be that a brand new Nokia on Android will suddenly be the featured phone in their promotions helping GREATLY to boost that phone's sales in that market. But this pattern will repeat in the first 6-9 months in essentially all major markets by at least one or two carriers there. This will power a return 'bounce'. The early quarters of Nokia's comeback will repeatedly feature the complaints of management that their demand is exceeding supply...

So then to 'Nokia that you love' - yeah, good point, but Nokia also knows the value of having a flagship as the driver of their visibility and getting people excited about the brand overall. Even if its 'unprofitable' to create now a top-end flagship (in an iPhone/Galaxy/Xperia class) that is kind of a required element in the re-entry strategy. One superphone has to be there, to re-establish Nokia. In reality, because the Lumia flagships sold in such modest numbers, if Nokia does just a new Android version with modest updates to the last Lumia flagship, even that is a good phone to start with...

And as many have said, just putting the pureview camera sensor onto an Android flagship alone, is reason to go buy the next Nokia 'proper' flagship.

Tomi Ahonen :-)

[Tomi T Ahonen]

Now comments from 21 May

Hi RickO - good points and yeah, the low-end of the Top 10 smartphone makers are so close with very small market share numbers, that once you get into the Top 10, at a bit over 2% market share, if you can keep growing, you could climb relatively easily up to number 4 where you need to be a bit over 5%. But then the jump to number 3 around 8% is a far bigger climb.

zlutor - haha, but you know what. The Nokia team is likely to be very business-oriented and cautious - BUT - it also means, they have robust business plans built on sensible views of the real world, not something silly. And then they will execute that with relentless management scrutiny and efficiency. Which means.. Nokia 'should' be able to almost consistently EXCEED their initial business plans. Look at the top of the market, they are novices there, recent new Chinese makers who are fighting with price on the Chinese domestic market to temporarily hold a good position, then find that price wars are unsustainable, and fall back into the pack. But then look at the guys on the top - how many times as Apple refused to behave 'rationally' and taken literally YEARS to do what every sensible business analyst has suggested. Thats not a smart company fighting a competitive market, and then look at Samsung and LG, both have done a series of blunders (as has, gosh, Sony, now out of the Top 10). This is not the most competent field of very strong rivals. I don't mean to belittle the challenge, but very likely this HMD & FIH partnership has some of the very best minds in HANDSET biz to fight this war. Some customers will buy price. They won't be buying Nokia. Others will buy 'value' or quality, and those will be in the market for Nokia. And Nokia, of the Top 10 rivals, is VERY good at delivering what those customers want. Expect Nokia to have good loyalty on the new Android smartphones.

Pertti - yeah, its Android. There will be updates, most def. I hope, hope, hope, that this is not done automatically and the consumer can decide not to do the updates if they so desire, and/or do the updates only via WiFi connection if the cellular connection is an expensive roaming one etc...

ChrisB - good example of the 515 and obviously from that phone to an entry-level Android is not a big jump for the consumer/customer, and those who worked on S40 to put it onto the 515 to run those specs, those engineers should welcome the opportunity to 'finally' be allowed to work on the Android version of that type of a phone. Obviously Windows wasn't able to go down to very low spec devices and after Symbian and Meltemi projects were killed by Elop, those engineers had no path to using their skills, to build smartphones for the low end.

Manufacturingbig (yeah we know who you are, so you will need to behave) - on the Nokia portfolio being 'a horrible mess'. That tells me you know nothing about mass market product portolio management but you love the simplicity of Apple who make all the decisions for its customers, and always gives them a compromise that under-delivers on critical elements. Always the 'not best camera' and always the 'not largest screen' and always the 'not most used memory expansion' etc etc etc. Typical Apple. And no choice. That is the Porsche 911 approach to phones. We decide. We make one aspect a priority (driver ability to go fast for Porsche 911, usability for iPhone) and everything else is secondary or non-existent like no back seat, no trunk, no diesel engines, etc etc etc. But you do get a Porsche 911 and its highly desirable and beautiful and viciously expensive and consistently profitable business for Porsche. Plus the car isn't updated every year like most other cars and has far less options than most cars.

Good luck with that selling those Porsche cars to MOST who buy a car. the family man with 3 kids and a dog. The taxi driver. The minivan operator. The college kid who needs a little car to drive around the town. Etc etc etc. The LARGE portfolio strategy is what you HAVE TO HAVE to fight for the mass market. That is what Samsung has, that is what Huawei has. It is what Nokia HAD before Elop. It is the ONLY way you can grow into a major mass market player - else you are a NICHE player. SonyEricsson was a mass market player. Recently Sony has shifted to a niche offering (and dropped out of the Top 10 and found this transition is very costly to its profits, and there is no guarantee this will succeed). If Nokia intended only to fight for the high end profitable niche with Apple, it would never have bothered with the low-end featurephone business in this partnership. No, the path forward is OF COURSE a large portfolio of many somewhat-overlapping products with minor distinctions on their features. It may drive you PERSONALLY mad that there is 'too much choice' but if that is what you say, you are clearly the same moron who has been on this blog under different names in the past. What you talk about is STUPID and IGNORANT about a mass market competitive opportunity. You are an idiot. Enjoy your time here on the blog, I don't block people simply because they are idiots. As long as you now behave.

Tomi Ahonen :-)

[Wayne Borean]

ROFL. Agreed. Apple focuses on usability, and are damned good at it, while limiting choice.

We were working on a new catalytic converter core design ten-fifteen years ago. There were a bunch on constraints, including NOx reduction performance, body size, cost, etc. We ended up going with an Apple style piece. It was a premium part, a fairly expensive part to build, but had great performance. And yes, most of the design choices were made by yours truly.

We lost sales because of our design choices for a variety of reasons, but actually reduced overall costs even though the core was expensive because we were using one catalytic converter core design instead of four. Volume is a fantastic competitive advantage!

The decision made sense for our company, at that time. One of our competitors went with a super cheap core design, which probably looked good on paper, but we ended up taking a chunk of business off them because our design worked better, even if it was more expensive.

Another competitor went with a wide range of choices from cheap to expensive. I think we ended up gaining business from them too. The reason I used a qualifier is that while I know we knocked them out of one particular market, in other markets it was harder to tell.

So I can see why Apple is doing things the way they do. I can also see where Nokia could pull in a ton of volume.

The phone business isn't like the catalytic converter business. With catalytic converters governmental regulations drive converter core design choices. If you need to reduce HC + NOx emissions to lower than 12 grams per horsepower hour and the core has to be capable of performing at that level for 5,000 operating hours or 5 years, then the core has to have a fairly high level of performance. And catalytic converters are sold to engine manufacturers, not end users.

In the phone business the 'bare minimum' is an ability to make voice calls. What makes or breaks a phone is the added abilities vs cost. Phones are sold to end users, to whom style and brand can be important selling points.

Nokia is going to pick the added abilities that it thinks will drive sales, leverage contacts with the carriers, use style and brand to drive interest.

Microsoft Windows Phone was a negative to end users. Android is fairly popular, so my expectation is that Nokia can expect to sell more phones than Microsoft. Because numbers 1, 2, and 3 hold such a huge percentage of smartphone sales, even a relatively small bounce in numbers will put Nokia in the top ten.

Add in Nokia's brand, and it should push sales higher. Assuming Tomi is right about Nokia's knowledge of end users in the emerging economies, and sales will go higher yet.

Assume I am right, and that Nokia has been planning for the last two years how to gain market share, and it is quite possible Nokia could end up as high as fourth place within two years.

And that would be a hell of a lot of sales.

I'm certain that Nokia is going to shake up the market. No, I don't expect them to make it back into first place in smartphone sales, but I do expect them to sell a lot more phones than Microsoft did, and to do so profitably.

Of course this assumes that they don't hire an Elop clone...

[chithanh]

> Nokia is renting their brand to a new Finnish company and Foxconn.

Depending on how it fits your narrative best, Nokia is renting the brand or it is designing nothing special...

> The Old Nokia did design the Foxconn manufactured N1 tablet - and it was NOTHING SPECIAL WHATSOEVER.

And yet N1 sold out in several flash sales within minutes in limited regions with minimal marketing, purely based on the Nokia brand.
Nokia still sells around 15M dumbphones per quarter, those people are going to look for smartphones one day.

> a source of income to support the R&D

How much can that cost? There are dozens of small Chinese manufacturers who produce highly competitive Android smartphones at extremely slim margins. Lots of R&D is already done by Qualcomm and Mediatek; put their designs in your case, slap battery and screen, and presto you have a smartphone. (Intel did even pay for your marketing in addition to that, but Intel exited the mobile business in this generation.)

[Paul]

@Wayne

> But this isn't "Nokia". Nokia is renting their brand
> to a new Finnish company and Foxconn. Neither of which is Nokia.
> We have no details other than the name of one person of
> how much "Nokia" is in the new Finnish company.

So the HMD-Nokia thing can be seen just as a lawyer solution of getting around some obstacles. It is easy to see that Nokia is the one which has paid (one way or another) 350 million to Microsoft such that HMD got what it bought from Microsoft. It is very easy to see that HMD is relatively new Finnish company which has never had and it does not have that kind of own funding (of 350M$) to buy the phone business from Microsoft. Just look for what HMD has been used before!

From consumers' point of view there will be one entity which will be Nokia and that is it. This is what matters. By the way, HMD even has a un-pronounceable name (on purpose?) so the people will not even remember it 5-minutes later.

> Can this new Finish company make Pureview cameras? I don't know.

Nokia has done it and it can do it today. That means that HMD will have it and do it too. Just do not let the HMD thing from Nokia-HMD-Foxconn confuse you.

> Neither Msft, nor the existing real Nokia company have given
> any R&D personnel to the new Finnish company.

Today's Nokia has R&D people in Finland! Nokia is obviously supporting 100% HMD and I do not see why HMD will not get support from Nokia in this area.

> The Old Nokia did design the Foxconn manufactured N1 tablet - and it was NOTHING SPECIAL WHATSOEVER.

It was not supposed to be SPECIAL. It was a test of Nokia brand and not of Nokia's R&D.

> But even if they do -- is it going to be better than what LG, HTC and Sony are making (and failing to sell)?

Nokia & co will do better than LG, HTC and Sony! I am pretty sure that Nokia Android smartphones will get 50% of the smartphone market in Finland in the first 12 months.

> I still think the most likely path forward are cheap,
> well made phones sold for a little more than cheap
> no-name phones. But with Nokia's brands,
> they might be able to sell quite a few of them at small margins.

I guess that Nokia's plan is more flexible than that and it will be based on country to country.

[Winter]

@Lullz
"It's basically a huge sensor and algorithms to to make a smaller but more clear picture. "

Others are moving away from high density sensors (many pixels) because of low light performance. However, the pureview sensor is bigger and collects the same amount of light as a 5MP sensor per pixel (it is more complicated, see link). The point is not the number of pixels per se, but the digital zoom.

http://gizmodo.com/5913264/what-is-nokias-pureview-technology

[Winter]

@Lullz
"The digital zoom is of course nice but it's hard to understand why most of the big competitors wouldn't be able to do the same if they wanted to."

Optics? You need very good optics to fit such a big sensor in such a small space. Zeiss seems to be good at that.

[Winter]

@Lullz
"It's reasonable to assume that the others may have made progress on that area in 5 years."

Optics does not progress that fast it seems. Zeiss is still one of the leading companies, like it was at German reunification 25 years ago.

[chithanh]

@Lullz
> Do you know how many N1 tablets were sold?

First flash sale sold 20k units in four minutes, with 560k lining up.
Second flash sale sold 32k units in just under eight minutes, with 660k lining up.
Third and fourth flash sale did not give any public numbers, but it seems reasonable to assume around 100k N1 tablets were sold in total in its single region.

> Adding the Nokia specific features makes it expensive.

Nokia-specific features are needed only for the halo product.

> At the same time people seem to think that Apple wouldn't have resources for designing something like 10 phones every year even if Apple wanted to do that for some reason.

Huh? Samsung can design 10 phones per year with no problem, why would someone think that Apple couldn't? What Apple can't do (easily) is shorten the development cycle to match the Android collective's agility.

[chithanh]

> Having the Nokia specific features only on few phones may risk the brand.

The 15M dumbphones that Nokia still sells would disagree.

> Not sure why you think that wouldn't be possible if it was something Apple really needed to do.

Tomi's standard counterexample of a product that Apple rushed out of the door is "Antennagate" iPhone 4.

[Jaakko]

@Tomi
This news is in Finnish but you may want to tweet it or something.

"Paikalliset odottavat lehden mukaan Nokian puhelinten tuotannon alkavan taas Microsoftin myytyä peruspuhelimien liiketoiminnan sopimusvalmistaja Foxconnille.
Nokian entinen luottamusmies Udayakumar kertoo, että ihmiset tulevat töihin vaikka alennetuilla palkoilla, koska he yksinkertaisesti rakastavat Nokiaa.
Chennailainen puhelinmyyjä Ravishankar puolestaan kertoo, että Windows-puhelimet myyvät huonosti. Parhaiten hänen mukaansa myyvät vanhat kaksois-sim-peruspuhelimet"

http://www.verkkouutiset.fi/talous/kauppalehti%20nokia%20tehdas%20intia%20-50894

[chithanh]

> I believe those phones have Nokia specific dumphone features.

None that people actually care about (or are even aware of) any longer. Dumbphones are no longer lifestyle items.

> What's the rushed out part on that? The antenna of iPhone 4 had issues

Precisely that. The accelerated schedule did not leave enough time to identify and fix the problem. You need to read Tomi's blog more. :)

[Santiago]

R&D combined with a great knowledge about consumers needs (AKA Marketing), is, what I think, made Nokia stand out with innovations and features. We all know that the Nokia brand has value l. But that value is partly (and maybe mainly) supported by all the R&D Nokia has done through its history to make the phones it made.
If now this new venture relies on more "generic" R&D without much differentiation, the brand surely will be recognised by people who had Nokia phones, but what will happen with younger public and newer generations? (Don't know what will happen after the 10 years the contract lasts anyway).
All the news I've seen nowhere said that HDM will invest in R&D or even be in charge of design (I don't remember exactly). The old Nokia smartphone division now belongs to Microsoft.
So is possible that R&D will be some "generic" chinese to say it in some way. So will that and the Nokia brand be enough?

[Santiago]

@Paul
Quote: "It is easy to see that Nokia is the one which has paid (one way or another) 350 million to Microsoft such that HMD got what it bought from Microsoft. It is very easy to see that HMD is relatively new Finnish company which has never had and it does not have that kind of own funding (of 350M$) to buy the phone business from Microsoft. Just look for what HMD has been used before!"

But that 350M included a feature phone manufacturing facility that was acquired by Foxconn not HMD, so moat of the money may come from Foxconn not Nokia nor HMD.

[chithanh]

@Lullz
> Exactly why new Nokia specific features are needed for smartphone.

No, why? Low-end smartphones aren't lifestyle items either.

> Or Apple simply didn't care about the problem. Actually Apple didn't according to the book about Steve Jobs.

Whatever the extent Apple cared, they could have caught and fixed the problem given enough time.
In addition, they underestimated the extent of the problem and the customer and media response. Initially, Apple gave instructions to support staff not to hand out free bumper cases, a decision which they reversed later. Could have prevented the class action lawsuit.

[Rimi]

The new Nokia handsets will only succeed if they make Tomi their new CEO otherwise they will not take off at all.

[chithanh]

@Lullz
Again, only halo products need something special.
Reviews of high-end devices usually get a large percentage of page hits relative to their actual sales. Everyone wants to know how the latest flagship performs.

Samsung low-end smartphones don't have anything special, if anything they are worse than Huawei devices that cost the same. Yet Samsung totally outsells Huawei everywhere except in China on their brand and on the halo of the Galaxy S series.

And simply putting a well-known brand onto a phone instantly raises its value in the eye of the customer. $7 cellphones in Shenzen's Mingtong Digital Mall come with Samsung and Nokia faceplates that the buyer can choose from:

http://wiki.hacdc.org/index.php/HacDC_Wiki:$7_cell_phone

[John A]

Any Idea if Nokia will make their own Android flawor for the cheapest models or join the Android One program? I guess for the flagship they will have the standard with Google Play. And maybe the Z launcer they use in the tablet.