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Summary:

Nokia’s transition to Microsoft Windows Phone 7 will cost Nokia far more market share and profits than it will ever gain by dumping the Symbian operating system, according to Tomi Ahonen, an ex-Nokia employee turned analyst. But his blame on Stephen Elop, Nokia’s CEO, is unfounded.

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Nokia’s transition to Microsoft Windows Phone 7 software will cost Nokia far more market share and profits than it will ever gain by dumping the Symbian operating system. So says Tomi Ahonen, a former Nokia employee turned analyst/blogger in the mobile space. Ahonen outlines Nokia’s performance prior to the company’s February announcement of its partnership with Microsoft and sets expectations through 2013. His analysis follows Nokia’s news last week of tumbling market share, sales and revenues.

Until Stephen Elop left Microsoft for Nokia in September of 2010, however, Ahonen appeared convinced that Nokia’s Symbian strategy would eventually pay off, a scenario I disagreed with. The company’s hardware always impressed me, but in my opinion, it always lacked in user experience and software. That held true in my review of the Nokia N8 handset. Others would disagree, of course; more Symbian-powered smartphones have sold than any other platform, at least until last quarter, when Apple and Samsung both sold more smartphones than Nokia. And HTC is fast growing sales as well, thanks to its early adoption of Google Android

Ahonen is still justifying his original belief in the Symbian strategy, saying that the platform had already improved enough to help grow sales:

Then came the new Symbian S^3 on several phones, led by the new flagship phone N8 which set a Nokia record for fastest sales in a quarter. All declining trends were turned into growth – this tells us the market loved Nokia’s new smartphones on the new Symbian S^3 operating system and this is absolute proof that Nokia was on a come-back. Whatever you may have thought of Symbian prior to Q4 of 2010, became obsolete. Nokia had indeed on its hands, a true hit series of phones and a hit operating system  with the N8 setting internal Nokia records for new phone sales. Look at the facts. [Emphasis added by Ahonen]

I won’t argue with the numbers that Ahonen lays out, but I will point out that he’s missing one key number: overall market growth for smartphone sales. “A high tide will lift all boats” is a common phrase that applies, and even leaky boats will rise with the tide. Smartphone adoption is increasing around the world, and even the less competitive market players can see gains. Nokia’s smartphone sales in the final quarter of 2010 rose 7 percent, partially for this reason. But the overall market grew faster: IDC suggests that year-over-year growth in smartphone sales for all vendors was up 87.2 percent; Nokia accounted for the least growth out of the top five handset makers.

But Nokia’s Symbian past has little to with its Microsoft Windows Phone 7 future, and Ahonen’s model — meant to be simple — suggests that in a best-case scenario, for every WP7 phone Nokia sells, it will be offset by the loss of a Symbian sale. Essentially, the platform transition will be an even sales swap and by the end of 2013, Nokia will have a far lower market share than it has now:

So taking the very best case of 2012, using the best ramp-up ever, and then using the best case of growth in mass market scale, we get Nokia’s Microsoft Windows Phone 7 based smartphones – the very very best case scenario – to hit 20.3 million smartphones not at the end of 2011, not at the end of 2012, but the end of 2013. By that time, Nokia’s smartphone market share will be at . . . 8%.

The 20.3 million smartphone sales ten quarters from now seems low to me for two reasons. One is the growing smartphone market I made reference to earlier, which will help all smartphone platforms to some degree. The other is the timing, because the smartphone market is changing so quickly. If you don’t think so, look at Research In Motion, which is working through a transition of its own; the company is changing fast and as a result faces declining sales. It just reduced its workforce by 10 percent. When you’re in a fast-growing market and have to eliminate jobs, that means you’re either not competitive, not profitable or both.

In the end, Ahonen blames Elop’s decision, saying,

Before Stephen Elop killed Symbian, Nokia’s smartphone market share was 29%. Nokia towered over its rivals and was growing smartphone sales with highly desirable new smartphones. Today just five months after his ridiculously-timed announcement of Microsoft, Nokia’s smartphone market share is down to 15% and collapsing.

I agree with Ahonen that Nokia’s market share is collapsing; we’ve already seen evidence of that. And by publicly stating that Symbian was a dead end, Elop may have added more stress to an already fragile public perception. But I think it was the right call. Had Symbian continued along a path where it underwhelmed, Nokia would run the risk of having that negative vibe transfer to new Microsoft-powered phones. In fact, I wonder if Microsoft made this part of the overall deal, simply to avoid such a scenario?

Regardless of my different reasoning from Ahonen’s, I think we can both agree: No matter how sad it is to see the mighty fall, Nokia’s best days are behind it.

  1. “more Symbian-powered smartphones have sold than any other platform”, “Nokia’s smartphone market share was 29%” … are these statements really true? From technical point of view probably yes. But from market point of view? I don’t think so. A lot of people around have Symbian powered Nokia “smartphones”. But most of them didn’t bought neither Symbian phone nor a smartphone. They went to the local shop an picked up the latest Nokia they liked. They are not aware of the capabilities of the phone, they are not using the smartphone features. Some of them even say “I don’t want smartphone, I don’t need internet, app store etc. I want only calling and SMS functionality.”. (and they go to a shop and return with Symbian :-o)

    That IMHO moves a large part of the Nokia’s share from the smartphone category into the (feature)phone category and thus invalidates all the analysis based on the smartphone / Symbian market share and the smartphone market growth.

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    1. I think you’re spot on in terms of people shopping for a smartphone; the same could even be said of the many Android phones to a point, which is very different from someone saying, I’m going out to buy an iPhone. ;)

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      1. I’m not sure this is valid for all markets … here in Czech Republic I would say that most Android phones are substitutes with iPhone (sure, many people go to buy an iPhone and end up with Android equiped HTC or Samsung due to the price). But I think only a minority of people would add Nokia to this category. I think they are even marketed by the resellers/networks in a different category. I believe the dividing line here is quite clear … Nokia = regular phones, iPhone/Android = smartphone.

        (PS: of course Czech Republic is a really small insignificant market … I’m not 100% sure whether my assumption can be applied at least for the neighbor countries like Germany, Poland, Austria etc.)

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  2. Evan Jacobs Monday, July 25, 2011

    I think the more interesting opportunities for Nokia reside in their eventual acquisition by Microsoft as a first-party OEM.

    It only makes sense that MS will eventually want to make its own mobile hardware to retain deep control of the ecosystem they are currently building.

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    1. I’m not necessarily in disagreement with you, but I have to wonder what that would do to the other WP7 partners. If I were them and MSFT bought Nokia, I’d drop the platform; especially if I was already building Android phones, or (like Samsung) had my own reasonable platform/ecosystem in the works.

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      1. Tony Vitale Monday, July 25, 2011

        Kevin
        Nokia’s and MSFT had no other alternative but to do just what they did and I believe MSFT laid those plans early on before Elop took the position. The only hope for either company is that that their choice of providing a walled ecosystem bares fruit as Google becomes overwhelmed defending Android in court, backs away from defending it’s developers in court or takes too much flack and negative publicity in the wake of virus apps or politically incorrect apps.

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  3. Being purchased by MS at 10 a share, that is just about the best Nokia can hope for right now.

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  4. geektech999 Monday, July 25, 2011

    i was about to by me a N8 before N9 will be release, but guess what? The nokia store was gonne and find out nokia ceo had kill symbian, why i would buy dead phone? Keep my N900 and wait for the N9 that has a strong developer community to keep it up.
    Probably like me would be many more people who just switch to other platforms or just wait. By the way i dont like wp, overprice apps and
    i feel weak OS.
    That my point of view.

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  5. He’s wrong about the long-term potential of Symbian. Symbian was a dead-end the same way Blackberry OS kept growing “globally” but it was still a dead end.

    I really think that if Nokia went with Android in 2009 (launch early 2010), they would be more success and with a brighter future than Samsung is right now because of Android.

    But instead they chose WP7 for a late 2011/early 2012 launch which is bad for them for 2 reasons: joining a “modern” mobile OS too late, and joining one that has virtually no market share.

    The first reason means that by the time Nokia releases a WP7 phone they’ll have less than 10% market share. Ahonen is being optimistic here. He says Nokia will have 8% market share in 2013. It will have as much by the end of this year. They only have like 16% left in smartphones. In fact they’ll probably have less than 10% next quarter!

    And because of the second reason, it will be like climbing a mountain with the wind in their face and a bag of rocks on their back. Nokia, the declining manufacturer *and* brand, is supposed to be the biggest backer of WP7? By the time they launch their WP7 phone they’ll be in such a bad financial situation, that they won’t even be able to promote it properly. They’ll barely move the niddle for WP7′s market share, and they’ll end up killing themselves in the process. Even Android won’t save Nokia after that.

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    1. You seem to be forgetting that Microsoft is free to promote WP7 when it appears on a Nokia phone, and Microsoft is not exactly in a bad financial situation. Also, WP7 is already on a few non-Nokia phones.

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    2. Thats why Sanjay Jha is worth all the money Motorola has paid him.

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    3. Exactly so. It isn’t that WP7 was worse than sticking it out with Symbian. The question is, of all of the options on the table, was WP7 the right choice?

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  6. Btw, I like what you’ve done with the comments. It doesn’t seem to “remember me” as a guest, though.

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  7. Symbian could have worked. Here’s why.

    Sure it was old. But it was very stable and energy efficient. Criticism of it was mainly for the old user interface. Nokia could have (and was working on) a complete Symbian UI overhall, which Elop and Microsoft killed off.

    Don’t forget, that Microsoft’s phone OS is also resting on a very old code base, with Windows CE. Windows Phone 7 just brought a pretty interface to sit on top of WinCE.

    You have to wonder whether Microsoft wanted Symbian and MeeGo killed off, just as much as it wanted Nokia to adapt Windows Phone.

    Windows Phone does not stand a chance. Yes, nice UI, but that’s where it ends. Microsoft is mismanaging it just like it mismanaged WM6.5, Zune, Sidekick and Kin.

    It is impossible for Microsoft to break into the phone market with an OS as closed as Windows Phone. The only way that any competitor can gain traction is to open up, and let others profit. No walled-gardens.

    MeeGo could have been it. Windows Phone ain’t. The only reason Apple managed to do well with a walled-garden is because Apple had first-mover advantage.

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    1. The reason Apple managed to do well with a walled-garden is because a very large number of people love the iPhone! (And because there are so many apps for it.)

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  8. I think Elop decision to kill/drop down symbian in such early stage was big mistake. At first best would be developing second product line base on WM and see how people likes it (seems not so much according global adoption. Coming up with such sharp statements drop Nokia market share by 20% which will also effect new Nokia WM adoptions. Funny that today Nokia new Symbian ANNA is quiet stable platform but the lack of apps and developer supporting the system will kill the platform. Sad that platform will die when it became really good.
    In all respect to Ahonen opinion, in the end Nokia was late with developing Symbian to much higher levels, and all past managers should be blame for it. it’s not fair to blame Elop to all Nokia past mistakes. Looking from his point of view, he made brilliant decision, because train is driving fast and if Nokia will not catch up, it will be the end.

    Isaac
    Tel Aviv, Israel

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  9. Its a dead horse Kevin – I mean the topic ;)
    The only interesting angle now is who is going to buy them and in what stage.
    Being non-conformist, I suggest Samsung. The new #1 swallowing the old #1. Could be a cool merger. And a good push for Android too.

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  10. I kind of find myself wishing that they’d gone with Android, putting aside any sort of supposed Google gloating. They could’ve built a Symbian skin for Android, and replaced the underlying code. Voila – the familiarity of Symbian for their entrenched customers, the thousands of apps of Android. Oh well.

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    1. exactly my thought as well.. Still hoping for that to happen. I still love Nokia’s design, hardware and durability better then any phone i had so far.. ( iphone, sony ericson etc. o yeah and very unpopular,, mitchubichi, they had awesome ideas already in 1999 things that they present as ‘new’ now.. ah well, being ahead of your time doesnt sell enough either i guess)

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