What Does Windows Phone 8 Mean for Nokia? (Part 1)
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Osborne Effect: (n) Negative sales consequences for current products following the announcement of a future product.
Nokia Lumia 900: (n) Fresh victim of the Osborne Effect.
Struggling mobile device manufacturer Nokia (NYSE: NOK) took a gamble last year and opted to ditch its antiquated-but-proprietary operating system, Symbian, in favor of the Windows Phone OS from Microsoft (NASDAQ: MSFT). That seemed like a good plan. Finland-based Nokia needed to do something to distinguish itself from the glut of Android devices, mostly from Samsung, and Apple ’s iPhone.
But official unveiling of Windows Phone 8 last week revealed a major problem: devices running Windows Phone 7 won’t get an update to the newest OS. WP7 devices will get a slight improvement to Windows 7.8, with some WP8 features included, but lack the hardware to go all the way. That means owners of the two month old Lumia 900 will be holding outdated devices before the year is up.
This isn’t news to Nokia. The company, in a pinch, made the Windows Phone deal knowing full well that the Lumia devices would become outdated very quickly. The company didn’t pass that information along to consumers and many Lumia owners understandably assumed that an upgrade would be included since WP8 was just around the corner. Nokia might’ve waited to let Microsoft break the news to make Microsoft look like the bad guy but that didn’t exactly work. Tech journalists are already renaming The Osborne Effect as the Elop Effect, after Nokia CEO Stephen Elop.
The market reacted accordingly. Nokia shares dropped 1.6% on the Finnish market on Thursday, bringing the trading price down 49% for the year to 1.93 euros ($2.42). Analyst group Nomura Holdings slashed its Nokia estimates based on the new WP8 information. Predicted revenue from internet capable devices, such as the Lumia 900, dropped from 10.9 billion euros ($13.7 billion) to 6 billion euros ($7.5 billion) next year. Estimated 2013 sales of Windows Phone devices were lowered 41% to 34 million devices.
Microsoft: Device Manufacturer?
Misery loves company and there was more potential bad news for Nokia this week. If the upgrade lacking was a slap in the face to Nokia, rumors of Microsoft-manufactured WP8 devices would be a kick to the crotch.
According to the aforementioned Nomura analysts, industry insiders are buzzing about Microsoft’s potential plans to produce its own WP8 devices. Production would involve a contract manufacturer actually doing the making while Microsoft did the branding and endorsing. The rumors are just rumors at this point but the reveal of the Microsoft-made Windows 8 Surface tablets last week make the possibility seem less remote.
That decision would make for even more Windows Phone competition for Nokia. The company already isn’t alone in being a WP8 launch partner. Arch rival Samsung will also be one of the first out of the gate, followed closely by devices from the likes of HTC, Huawei, and ZTE. If the Lumia debacle makes consumers less trusting of Nokia, later adopters may flock to the other manufacturers instead.
Tune in for Part 2, where I look back at Nokia’s very bad year and ponder its perilous future.
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