Nokia's smartphone problem
Nokia may still dominate the overall cell phone market, but a steady slide in its smartphone market share could threaten the company's long-term standing.
On Thursday Nokia announced third-quarter earnings that, despite an unexpected loss of $832 million in its telecommunications equipment unit, beat expectations. The company managed to ship about 3 million more handsets than analysts had expected. But it also reported that its share in the growing smartphone market is on the decline, a sign that Nokia is losing ground to competitors, such as Apple and Research In Motion.
Nokia's cell phone shipments and revenue were not as good as they were in 2008. But no one expected them to be. Still, the third quarter of 2009 showed a glimmer of hope that the global recession might be subsiding and people may be returning to normal buying patterns in the mobile market.
Nokia's executives told investors that the company's overall global market share is expected to remain unchanged for the year at about 38 percent, good news considering aggressive attacks from competitors, such as Samsung and LG.
Olli-Pekka Kallasvuo, Nokia's CEO, said in a statement that the company sold more mobile phones in the third quarter than in the second quarter. And the company revised its expectations for the entire mobile phone market. Instead of seeing a total sales decline in 2009 of 10 percent, Nokia now sees a decline of only 7 percent compared to 2008.
Even though, Nokia appears to be holding its own in the overall handset business, it is losing ground in a very important segment of this market, which could hurt the company in the long run.
Nokia execs acknowledged that the company is losing market share in smartphones, the fastest-growing segment of the market. The company's market share has fallen to 35 percent from about 41 percent in the previous quarter. Nokia sold 16.4 million smartphones in the third quarter, which was down from 16.9 million in the second quarter. Nokia blamed component shortages like camera modules for its miss on smartphones.
But the slide in market share is best explained by growing competition from iPhone maker Apple and BlackBerry manufacturer Research In Motion, which are each eating into the company's sales.
While Nokia will say that its latest N-series device the N-97 has been a success, the phone--which is not tied to any carrier in the U.S. and sells for more than $600 without a contract here--has seen very low sales compared with the millions of devices that Apple and RIM are selling in the U.S. and overseas. Even Nokia E-series devices that are sold on AT&T's network in the U.S. are not getting the volume of sales that the iPhone and BlackBerry phones are getting. And without a strong showing in the U.S. market, Nokia's smartphone business is at a major disadvantage to its competitors.
The bad news for Nokia is that competition is only expected to intensify as device makers introduce a slew of new products using the new Google Android operating system Other products, such as the Palm Pre, are also likely to gain more traction over the next several months as they strike deals with more wireless operators.
But at least in the short term, the biggest threats appear to be Apple and RIM, which are gaining momentum as more consumers are enticed by carrier subsidized prices that come with two-year service contracts.
Nokia appears to still dominate the low end of the cell phone market. Its strength over the past several years has been in selling high volumes of low-cost devices to developing markets. While volumes are still high, there are indications that trouble is on the horizon.
Nokia said the average selling price for one of its mobile phones fell by 14 percent to 62 euros, from 72 euros a year earlier. The company's gross profit margin narrowed to 30.9 percent in the third quarter compared with 34 percent in the second quarter. And its operating margin for cell phones, which is the profit the company makes on its phones before taxes, fell to 11.4 percent from 12.2 percent in the second quarter and 18.6 percent during the same quarter last year.
It's clear that even as overall mobile phone sales rebound as the general economy improves, Nokia must work harder to maintain its market dominance. The company, which sells over 400 million devices a year, is not going away. But the once mighty Nokia may lose some of its muscle if it cannot develop compelling smartphone products to take on its rivals.
Nokia executives say they are working hard to come up with new products that will compete in this arena, but the company also appears to be devoting attention to adjacent market segments. It is difficult to say whether this strategy is a good one at this point. Nokia seems intent on developing a services business with its Ovi platform. And it is also getting into the PC market with a newly announced Netbook product.
These divisions are still small compared to the company's handset business. And whether these efforts turn out to be successful remains to be seen. But at this point, even success in these businesses will not offset losses in its traditional handset business anytime soon.
Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie. 
they dont even feature in the top 5 list
even htc is more of a threat
Nokia makes a great smartphone, and some people will buy them without carrier support at a huge cost (e.g., the N97 is $550). But when you compare that to $199 for an iPhone or Blackberry Bold, you know where the sales are going to go.
I hope that Nokia can negotiate some better deals with U.S. carriers, as the ones who are really losing out are U.S. consumers.
True.
and in Feature phones category. For ex: E71, E72, E51, etc, etc. there are many.
Software is not that bad, except the browser and few other quirks here and there, which anyone can live with, given the features they pack at the price they sell. I can tolerate few quirks than paying more for a feature-light device like iphone 3G. Ovi store is not useless. There are many many apps available in Ovi store. The issue is that, there are so many third-party apps available for Nokia which are not available in Ovi store. Reason: There were 3rd party app stores for Nokia Apps before Apple started their app store.
Since Nokia has been in business since so many years, there are so many other 3rd parties whose business has been established depending on Nokia. So they don't want all their apps to go into Ovi store, else they will lose money on their business. While Apple started fresh, so there were no such issues.
Nokia is pushing towards making Smart phones where you will require less useless apps. Look at soon to be launched N900, with its full mozilla based mobile browser, it will not require more than 50% of the apps required for Apple/Android. Also Symbian new vesion is coming up next year, which will bring a fresh look like the Maemo 5 that will bring this year and Maemo 6 next year. Competition is stil going to be fierce, since their are more players in the market now than before, but if Nokia maintains their solid hardware approach with the new Maemo and new Symbain OSes, they will still win in the longer run.
All eyes are now on N900 for the next 6 months. Wait and watch. I am betting on N900, if Nokia can cut some carrier deals, especially in US.
it may be fine on d-pad based handsets
but it was never meant for touchscreen based phones
Futhermore it look and feels oudated comapred to the competition !
They have a good thing going with their new Maemo O.S which looks stellar
it's got all the features of Android { Widget based homescreens, customization}
along with true Windows based multi-tasking {better than cards feature of Web O.S}
a Mozilla based web browser with support for flash and probably add-ons
and great integration with most IM and Voip services
it'll probably bring them back into the game if not put them ahead
hardware has always been nokia's strength ,coupled with maemo it could be killer
So Nokia will do just fine if they move all their smart phones towards Maemo and fast
Anyway, Nokia has too many non-smart phones which have almost similar capabilities as their smart-phones, abeit cheaper, thus, cost-conscious will be a factor, given that they hadn't focused much on R&D in smart-phones as much as non-smartphones if you'd seen their releases over the years.
Anyways back to the topic - the article doesn't fully explain the reason for Nokia's market share decrease. To find the reason one needs to look at the global market with it's biggest players, with their phone positioning, platforms chosen, pricing, subsidizing, etc. None of this is in the article, thus rendering it incomplete and uninformative.
I think the US is still in the stone age in terms of gsm communications, gsm coverage, model availability, and in general - in terms of how well people are informed about products and services.
1. Over 200 smartphones offered in the US alone according to Cnet's own review section. That is simply a logistical, support and OS nightmare for Nokia.
2. How many OSes do they think they can support and develop? Symbian? Maemo?
3. And now Nokia is cutting deals with Microsoft? Whaaa?
4. Ovi, not just a disaster but a complete disaster and I won't even mention "comes with music."
5. Selling 400 million devices a year and losing money? This is their biggest problem. Apple sold around 15 million devices and had revenues of around $10 billion making hundreds of dollars off of each phone.
BTW, while Nokia and WinMo have lost marketshare, Apple and RIM have gained marketshare. You can interpret it any way you want. And Google finally seems to be coming along as well.
- by drmatthewcrandall9 October 22, 2009 12:07 PM PDT
- Shows you how "with it" I am...I've never even heard of Nokia's N-97.
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(20 Comments)Instead of suing Apple for their issues...they should spend a little money on advertising here in the US.