Nokia May Outlive HTC in the Smartphone Market

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Nokia Corporation (NYSE: NOK) was once the world leader in cell phone handset manufacturing. Their feature phones were among the most reliable and easily attainable units on the market, and nearly every carrier featured one or more models. However, in recent years that pinnacle has become a thing of the past for the Finnish handset maker.

When Apple (NASDAQ: AAPL) brought out the iPhone back in 2007, they introduced the world to a whole new type of phone. As Samsung Electronics, HTC, RIM, and other handset manufacturers began to follow suit with smartphones of their own, Nokia seemed to have dropped the ball.

In the early stages of smartphone development Nokia failed to compete with its rivals. Their attempts at producing a popular smartphone failed continually. However, there appears to be the possibility of some light at the end of the tunnel for the struggling company.

In recent months, Nokia has garnered more and more positive press concerning its smartphones. These phones are powered my Microsoft’s (NASDAQ: MSFT) Windows Phone OS. The models first began to gain attention with Windows Phone 7.5, and with the upcoming Windows Phone 8 models, such as the Lumia 920, the tech world is beginning to take notice of the company once more.

One other struggling company in the smartphone world is HTC Corporation. HTC has been a fairly popular model due to its use of Google’s (NASDAQ: GOOG) Android OS. Android phones dominate the market, ranking above even Apple's iOS in market share.

However, Google's Android software is free. While this may seem like a good thing for HTC, it could actually lead to a pitfall for the company. Nomura Research has released a report concerning this fact, and the facts are rather interesting.

Some analysts note that Microsoft is not known for handing out free licensing agreements in relationship to its top shelf products. In fact, the company generates much of its revenue from software licensing agreements. Yet, we find that Microsoft gave Nokia a free pass on the Windows Phone 8 software. This is because Microsoft knows that in order for Windows Phone OS to become a major player in the mobile world, they need good phones to show off its features.

As more and more companies are manufacturing cheaper smartphones that run on Android, there will be more competition involved in keeping a company alive. Nokia will most definitely feel the cramps of these growing pains, as the feature phone market, which has been the company's lifeline for several years, begins to fade away. Nomura notes that the feature phones could be cannibalized by as much as 24% by smartphones. This will definitely be a thorn in Nokia's side.

However, Nokia will not be the only company to feel the pain. HTC will also suffer from this cannibalization, as according to Nomura's findings, mid range Android devices will also take a hard hit. The most likely candidates for survival in the Android world will be Samsung, with its Galaxy line considered the Android equivalent of the iPhone, and Google's Nexus line.

The bottom line is that HTC, although a popular brand, is mainly supported by the sales of lower end Android devices. These devices are fairly well liked by consumers, but they are not in the same league as the iPhone or Galaxy phones.

This seems to indicate to Nomura that HTC has a slim chance of surviving much longer, if the current trends continue. Of course, the Taiwanese manufacturer could follow Nokia's lead, and transfer its high end handsets to a Windows Phone 8 operating system, but Microsoft would be sure to charge licensing fees for such a move.

In order to make it to the next generation of smartphones, HTC needs to create premium devices that can rival Samsung and Apple in sales figures. However, this hardly seems possible, given the popularity of the devices offered by these two giants.

Nokia has a leg up on HTC in this area, in that they offer unique devices that are truly versatile. Their PureView camera is a major selling point with consumers, as it is touted to be the best camera in a mobile device. Their mapping platform is also one of the most advanced in the world. All of this sets them apart from competitors, like HTC.

If Nomura's research turns out to be correct, coupled with the fact that Nokia is a company known for always "turning its business around" and has bigger plans as far as the tech industry is concerned, then Nokia could once again retain its reputation as a great handset maker.

Chizy has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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