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Tuesday, December 18, 2012

Mobile Phones Market: Nokia Banking on Windows 8 and Asha

In February last year, Nokia (NOK) made a late but wise decision of phasing out its proprietary Symbian OS in favor of Microsoft's Windows Phone OS. With the coming together of the two struggling giants, a third force has begun creating its place in the smartphones market. Till now, Google's Android and Apple's iOS have been the dominant players. However, the market remains heavily skewed in favor of Google.
In terms of market share, Google has gained from 52.5% in Q3 2011 to 72.4% in Q3 2012 and the largest chunk of the increase has come from Symbian. [Garter, November 2012] Symbian has lost its share from 16.9% to 2.6%. This, at least partially, indicates a shift in the company's strategy. Nokia is treading a risky territory, pinning all hopes on its new line of smartphones and the success of Windows Phone 8 (WP8) OS. However, the situation is far from satisfactory. Nokia remains second on unit sales basis, but its share has fallen steeply to 19.2% in the last reported quarter from 23.9% a year ago.

Its saving grace has been the better-than-expected performance of low-cost Asha mobile phones in the stronghold emerging markets. With 41.6% of the Devices & Services revenue coming from Asia-Pacific (including Greater China), the company is continuing its focus on this region. Asha is a feature phone, a crossover between standard cell phones and smart handheld devices. While experts do not classify it as a smartphone, it does contain some overlapping features that compare with the low-end smartphones from rivals, like Samsung. Nokia has acquired Smarterphone AS, a developer of mobile software platform, to improve the functionality of its feature phones. However, Asha will still lack full-fledged operating system and Android-like ecosystem to back the user-experience. The overall non-smartphone market is fast shrinking. Standard mobile phones registered a 20.8% y-o-y decrease in Q3 2012, while the smartphones jumped by 46.9%. At competing price points, the Asha series may have a stiff competition ahead. Nokia stands 7th among the smartphone manufacturers with only 7.3 million units sold in the third quarter against 55 million for Samsung and 23.6 million for Apple.

The Finnish giant is still paying the price for its ambiguous disclosure about the unavailability of OS upgrade for its earlier Lumia phones. Users running WP7 cannot get a WP8 upgrade because they are radically different platforms. Customers may still be wary of buying the new mid and high range Lumia phones, fearing similar predicament in the future. While Windows 8 OS is finding favor among the experts, it is too early to gauge the consumer response. Nevertheless, Microsoft holds the advantage of high penetration of its desktop Windows OS and user familiarity with the brand. By making way to a seamless integration between Windows desktop and mobile versions, the company expects to gain market share quickly. But, Microsoft (MSFT) lacks the enormous ecosystem that can stack up against Android or iOS. This is of particular significance as smartphone market is highly sensitive to the number and types of mobile apps on offer.

Both Nokia and Microsoft are late entrants in the highly successful smartphones market. Both are testing the waters and banking on largely the same combined offerings. It remains to be seen how consumers reward the hardware competence of the first mobile maker and innovation from the legacy software brand.
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