Nokia's transition to Windows Phone could prove rough for the company, even as it struggles to fend off Google Android's assault on its low-cost phone market.
Did Nokia make a mistake when it sided with Windows Phone
That's the question apparently on a lot of minds, following
Nokia's stock plunge and some analysts' pessimism about the company's ability
to hold off an all-fronts assault by Google Android and Apple's iPhone. While
Nokia recently signed an agreement with Microsoft to port the latter's Windows
Phone software platform onto its hardware, the resulting smartphones will
likely not arrive on store shelves until the fourth quarter of this
year-placing Nokia in a somewhat vulnerable position as rival devices continue
to flood the market.
Following its transition to Windows Phone, Nokia will
abandon its homegrown Symbian operating system. That could be causing the
current dip in Symbian handset sales, as customers flee the platform in favor
of one with continuing support.
"We would continue to avoid the stock as Symbian smartphone
sales are falling off faster than expected and we are skeptical that new
Windows Phone (WP) models will be able to replace lost profits," Stephen Patel,
an analyst with Gleacher & Company, wrote in a May 31 research note. "Our
checks suggest mixed carrier support for Nokia's transition to WP."
Android is also threatening Nokia's traditional stronghold
in lower-cost handsets. "We think sub-$200 Android handsets, including those
from new entrants such as ZTE and Huawei," he added, "are hurting Symbian
units, which largely target the same price range."
To top things off, Patel seems concerned about Windows
Phone's ability to replace Symbian's market presence as the latter transitions
to the dustbin of dead technology: "We remain concerned that WP industry sales
remain below 2mil units/quarter and that [Nokia's] scale will not be enough to
offset a faster-than-expected drop-off in Symbian phone sales."
Other analysts have pointed to the transition period as
cause for concern.
"While we maintain our belief the Nokia-Microsoft
partnership is best positioned to potentially create a third viable smartphone
ecosystem," Canaccord Genuity analyst Michael Walkley wrote in a June 1 research
note, "we are increasingly concerned about sales for Nokia's Symbian devices
during the transition period."
Nokia itself had publicly acknowledged the risks associated
with the Microsoft deal in its Form 20-F 2010 report. "If we fail to finalize
our partnership with Microsoft, or the benefits of that partnership do not
materialize as expected, we will have limited our options and more competitive
alternatives may not be available to us in a timely manner, if at all," read
one section. "Our expected transition to the Windows Phone platform may prove
to be too long to compete in the smartphone market longer term."
In the wake of the partnership announcement, some analysts
had taken a positive view, suggesting that Nokia's reach and Windows Phone's
unique user interface could combine to create something of a powerhouse.
Research firm IDC suggested in March that Nokia-propelled Windows Phone could
surpass BlackBerry and iOS to become the second-ranked smartphone operating
system in the world by 2015.
However, Microsoft's share of the smartphone market continues
to dip-at least according to research firm comScore-while The Nielsen Company
low consumer interest in Windows Phone. And Nokia announced May 31 that its
handset sales and second-quarter earnings are in decline.
In other words, the two companies could still benefit from
their partnership-after what looks to be at least a few rough quarters of
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.