Microsoft unlikely to be Nokia's savior
By Cho Mu-hyun
Handset manufacturer Nokia has recently chosen software giant Microsoft (MS) as a way out of its current slump amid mounting difficulties but the outlook seems hardly positive.
Standard and Poor’s and Moodys recently downgraded the firm’s credit ratings to junk level. The company also announced that it plans to cut 10,000 employees by the end of the year, which accounts for near 8 percent of its 125,000 employees worldwide.
The company, led by Stephen Elop, has marked a 3 percent loss in operating profits in handset sales for the first quarter, while experts predict a similar loss for the second quarter.
The Finnish mobile phone manufacturer is betting hard on the alliance with MS, having dropped its own Symbian operating system (OS) and manufacturing Windows 7 tablets, which have not yet made a substantial dent in the market.
MS, which is suffering from its own difficulties in the smart industry, seems poised to cut its dependence on hardware manufacturers, showcasing its new tablet PC line “Surface” on June 18. Nokia seems unlikely to receive the news favorably.
“People will most likely buy Surface instead of Nokia’s Windows 8 tablet,” industry analyst Thomas Kang told The Korea Times over the phone. “Hypothetically, if the new tablet PC sells 10 million by the end of the year, 6 million will be that of Microsoftand around 3 million Nokia’s.”
“There is no change in our partnership with Nokia following the release of Surface,” said an MS spokesperson. “Our main business is still providing software and we will continue to collaborate with partner companies, including Nokia, while considering the general good of the market ecosystem.”
According to Kang, Nokia’s partnership with Microsoft may return some positive results in the long term, but will ultimately be insufficient for the Finnish company to see a turnaround.
Windows 8, ambitiously called a “game changer” by Steve Ballmer, has yet to prove that it deserves the name, which can only determined when it comes out during the second half of this year.
“Nokia can’t end its deficit streak simply with tablet PCs as it is a very large company,” said Kang. “Considering the current shipments, even selling 10 million tablet PC will not make the company see a turnaround.”
“The largest business in the smart industry is smartphones. For Nokia to see a turnaround, it must move around 20 to 30 million by the end of the year, which seems unlikely in the current state of the market.”
It seems Samsung Electronics and Apple’s duopoly is only becoming stronger as times go by, with ABI Research announcing Saturday that their combined revenue in smartphones was over 90 percent of the global total. Together the two hold 55 percent of the market.
Fitch Ratings stated on Wednesday that Samsung Electronics will likely hold the top spot in smartphones sales above competitors such as Apple and Nokia.
Nokia’s value as a partner is also declining for Microsoft, as decreased sales of handsets means less royalties for the American firm from its operating system (OS).
“Nokia and Microsoft grabbed a lot of attention in Barcelona four months ago, but it is June and there is nothing from the partnership that can be called a success,” said Lee Seoung-ju, head of Mobile Monday’s Seoul chapter. “Nokia launching Windows 8 can have some symbolic significance as a base from further projects, but the release in itself will have no major impact on the current market.”
“Nokia’s trouble will continue for the time being as it seems they have no hidden card. Reaching into tablet is a good start, but price wise the partnership is behind in competiveness to their rivals.”
The alliance with MS is to no use for the Finnish firm in the area that matters most: OS.
The current OS is ruled by Google’s Android and Apple’s iOS. According to market research firm Gartner, Android holds 56 percent of the global market share while iOS has 22. Nokia’s own Symbian holds 8.9 percent, while Microsoft is barely noticeable with 1.9 percent.
Only a year ago in the same period, the OS market was a triumvirate of the three with Android holding 36.4 percent, and Symbian runner-up with 27.7 percent. iOS held 16.9.
“Nokia must use Google’s Android, which is currently dominating the area, for future smartphone products for a quick boost in revenue for the short term. It will take at least a year for Nokia to see a return of investments from Windows 7 and 8,” said Kang.
The analyst said that in the end, Nokia is on its own for a way out of its troubles, the best way being making a hot product, like those of Samsung’s Galaxy S3 or HTC’s One X.
“British chipmaker ARM is planning to release its A15 dual-core processor in the fall, and all other companies are prepared for a handset model using it. Unless Nokia becomes the first company to release a smartphone with new chip, it is unlikely that they see profits within this year.”