Nokia May Be at the Last Chance Saloon
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The ills of the once dominant Finnish mobile phone maker Nokia ADR (NYSE: NOK) are many and, to some extent, getting worse. The company may be at 'The Last Chance Saloon.' The bartender is Steve Ballmer of Microsoft (NASDAQ: MSFT). He is pouring Nokia not the Finnish traditional 'long drink', but what he hopes is a nice, smooth and profitable drink of Windows 8 for smartphones.
Windows 8 had better be all that Microsoft has promised for Nokia's sake. It sold fewer of its flagship Lumia smartphones in the third quarter than Apple (NASDAQ: AAPL) did of its new iPhone 5 in its opening weekend!
Poor Sales and Market Share Trend Continues
Nokia's smartphone sales in the third quarter amounted to just 6.3 million units. There were 2.9 million Lumias sold in the quarter, down from 4 million the previous quarter. In the important U.S. market, sales amounted to a mere 300,000 smartphones. That is down about 50% from the previous quarter. In addition, revenues in China fell 80% year-on-year. Much of the blame lies with the fact that consumers globally were waiting for the Lumia smartphones that run on the new Windows 8.
Right now the Windows operating system accounts for only 4% of the global smartphone market, badly trailing Apple's iOS and the Android operating system from Google (NASDAQ: GOOG). Samsung's new Galaxy III runs on Android. That's just another reason it wasn't a great shock that Nokia was bumped out of the top 5 smartphone makers in the third quarter. That was the first time that happened since researchers at IDC began compiling such data in 2004.
Sales are unlikely to improve as much as initially expected in the short term either. This quarter is traditionally the strongest for sales of phones due to the holiday season. However, for Nokia, the flagship 920 Lumia smartphone will not be available for several more weeks. It will also be available only through one carrier, AT&T. This combination will likely hold back sales despite Nokia's market-leading mapping and photo technology.
Carriers Want an Alternative
There is one huge positive in the corner of Nokia and Microsoft though. The telecom carriers such as AT&T, Sprint, T-Mobile and Verizon (NYSE: VZ) want a viable third choice to the current duopoly of Apple and Google.
Verizon's CEO, Lowell McAdam, told the Financial Times recently that “the carriers are beginning to coalesce around the need for a third ecosystem. It'll be between [Blackberry maker] RIM (Research in Motion) and Microsoft, and I expect Microsoft to come out victorious.
He may be right about Microsoft beating out RIM. According to the consumer research firm Kantar Worldwide, in Europe, Windows will overtake RIM's operating system by the end of the year. Nokia's entry-level smartphone Lumia 610 seems to be winning over cost-conscious consumers there. In a first for Windows, it now has more than 10% of the market in Italy.
Europe could prove to be very fertile ground for Nokia and Microsoft since more than 50% of European consumers have yet to purchase their first smartphone and still have older phones. The brand these consumers is most familiar with is Nokia.
Another plus is that the launch of Windows 8 should give an impetus to developers to build applications and content that is currently lacking on Windows phones. The myriad of apps and content is a huge selling point for Apple.
But getting that content is a slow process and Nokia may not have the luxury of waiting too long. It is burning through its cash position rather rapidly thanks to its continuing operating losses. Standard and Poor's has forecast that, by year's end, Nokia will be down to 3 billion euros in cash. Some credit analysts even doubt whether the company can make a 1.25 billion euro bond repayment in April 2014.
So the Windows 8 effect had better kick in and fast. The next six to nine months will be critical to the fate of Nokia.
Compare and Contrast
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