Nokia to make little impact on Samsung

By Kim Yoo-chul

Nokia's plan to re-enter the smartphone market in 2016 may have little impact on existing market leaders such as Samsung Electronics and Apple; however, Nokia may become the "next Android brand" in the budget segment.

In the mid- and long-term, the company strategy could provide room for Samsung and LG Electronics to cut their heavy reliance on the Google platform.

"Samsung Electronics and Apple were not fighting for the same consumers; however, they had to fight for domination of distribution channels and the wider industry value chain," said Bernstein Research's senior analyst Pierre Ferragu, in a report to its major clients, Sunday. "This fight left no room for alternative Android players to thrive."

The research firm pointed out that Apple-created iOS and the Google mobile platform don't "really compete" but their ecosystems coexist as the iOS and Google applications hold monopolies on respectively on 92 percent and 80 percent of their installed bases.

"They are two co-existing near-monopolies and absorbed all alternative," it said in the report, titled "Nokia back to Smartphones. The Night of the Living Dead?"

Earlier, Nokia outlined plans to re-enter the smartphone market following the expiration of a non-competitive clause with Microsoft (MS).

It's unlikely that the "third ecosystem" will become a "game changer" because there's no room for new entrants to gain traction given the level of maturity of iOS and Android.

Apple and its integrated and high-end model won the economic game.

In the Android ecosystem, only 30 percent of profits are left, of which the world's biggest smartphone manufacturer Samsung Electronics captures 90 percent thanks to a strong corporate brand, scale and distribution advantage.

"Life as an alternative Android manufacturer is tough because it was tough to compete against Nokia in 2017," it said.

A next revolution?

In the old days, when brand, distribution and scale were everything, innovation was mostly hardware-driven and easily replicable.

This formula is returning today and Nokia has the possibility to become the next Android player, according to the report.

"Consumers comprehend instantly the benefits of the phones and early adopters become advocates of the innovation. The barrier to entry is high: the innovation is worth the effort of dropping Apple of Android. This is not a low barrier to entry," said the analyst in the report.

The research firm stressed that Nokia's internal goal to become the next Android player makes more sense and the company is hiring Android engineers for their upcoming new devices with "intimate familiarity with Android software."

One additional factor in Nokia's emergence is that it has an advantage in brand.

In the latest report by Interbrand, a global consultancy, Nokia placed 98th with a brand value of $4 billion.

"If it sells under the Nokia brand, it will spread across the globe at the speed of light and will become the coolest thing to own, at the same time leading edge, glamorous and elegantly retro," said the report, adding Nokia's brand value remains challenging to monetize.

The researchers insisted that Samsung will have less interest in the Nokia brand as it is an issue for second-tier smartphone manufacturers including LG and cheap Chinese phone manufacturers.

That means LG Electronics or Huawei of China may form a partnership with Nokia in device manufacturing. This will limit Nokia's ability to make money but boost Nokia's ability for design and strengthen its brand.

Phones aren't much differentiated from a technology perspective but are not commodity products as they are differentiable and branded products in which status-driven subjective dimensions outweigh feature-driven objective ones.

"From that perspective, the brand matters in smarpthones as does distribution and scale," the research firm said.

Sources at LG Electronics said the nation's No. 2 producer in smartphones doesn't have any imminent plans to take orders to manufacture phones with other brands beyond reference models as LG was working on manufacturing a next Google reference mobile.