It's no secret to anyone in the tech world that Nokia is in some degree of trouble. Sales have been plummeting through the floor, and revenues have dropped along with them, though this was mitigated until this year by performance in emerging markets.
Given the news today that it is laying off up to 10,000, the Finnish handset maker will have to work harder to avoid slipping further into decline. And company chief Stephen Elop had more bad news for investors, revealing Nokia expects its second-quarter smartphone losses to be larger than predicted.
"During the second quarter 2012, competitive industry dynamics are negatively affecting the Smart Devices business unit to a somewhat greater extent than previously expected," the company said in a statement. "Furthermore, while visibility remains limited, Nokia expects competitive industry dynamics to continue to negatively impact Devices & Services in the third quarter 2012."
Can Nokia get back to the top with its Lumia phones? Image credit: Ben Woods
It hasn't always been this way. Cast your mind back to 2007, when Nokia was doing well — really well: it had just under 38 percent of the market by total number of mobile devices sold, according to Gartner figures. Now this has slipped to just under 20 percent, and if you exclude feature phones, it makes even more depressing reading, with its smartphone share tracking globally at around 1.5 percent to two percent.
It seems that Nokia just doesn't 'get' the smartphone section of the market right now. Also on Thursday, it agreed to unload its luxury Vertu handset brand to EQT VI, part of the private EQT equity group, which cements its short-term low-end ambitions.
The 10,000 staff redundancies will happen at some of Nokia's research and development centres, along with some at manufacturing centres. The cutbacks are an effort to stem the tide of several billion euros in lost revenue seen in the last 12 months, but are also just the latest in a long line of restructuring and profit-warning announcements.
In February 2011, Elop sent a memo to Nokia employees warning them of the bumpy road ahead, saying the company was "standing on a burning platform". And platforms are something that Nokia doesn't seem to be able to get its head around, even though Elop recognised at that time the importance of the development ecosystem.
"Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem," Elop said in the memo.
Changing operating systems
Back when Nokia started out, its handsets used the Nokia OS, sometimes referred to as NOS. This was later replaced with the Symbian platform in a string of incarnations, and this OS is still used on Nokia's lower-end Asha handsets.
At the same time, Nokia pursued an open-source platform called MeeGo, developed in tandem with Intel, which later became Tizen. In autumn last year, the company decided to put Tizen on the back burner and funnel its open-source OS work on Meltemi, aimed at low-end handsets.
However, with the removal of the Uln R&D facility in Germany, home of the Meltemi project, its future can be assumed to be in serious jeopardy. So that leaves Nokia with a single platform — Windows Phone — and it's not even one it owns.
Given Elop's astute recognition that Nokia was being eaten alive by faster-reacting competitors and their accompanying ecosystems, the company's decision to stop building its own OS and rely on an outside platform suggests it is in pretty dire straits.
Now, Nokia is essentially just another OEM smartphone manufacturer that uses the Windows Phone platform. This is all well and good until Microsoft's platform gets more support from other device makers, at which point Nokia might find it harder to make its devices stand out from the competition.
Enter Windows Phone 8
On the other hand, slimming down and putting all its resources behind one OS might be exactly what the ailing company needs to survive for now, until it becomes clear whether Windows Phone 8 has the features to woo more buyers to the platform.
Our competitors aren't taking our market share with devices; they are taking our market share with an entire ecosystem.– Stephen Elop, February 2011
Dominating the smartphone market might be a faraway dream for Nokia right now. However, getting a stronghold in emerging and low-end markets isn't inconceivable. After all, from 1998 until March this year, Nokia was the biggest seller of mobile devices in the world. It just happens that in the last few years, the highly visible — and desirable — smartphone category wasn't one of them.
Indeed, Elop himself said on Thursday that Nokia is keenly anticipating the next Windows Phone OS release, describing it as an "important catalyst date" for the Lumia range. At the same time, he was keen to emphasise that the company is focusing on bringing devices to market at lower price points than its current cheapest Windows Phone handset, the Lumia 610.
"We will be bringing devices with price points lower than the Lumia 610," Elop said in a call with investors and analysts. "We need to compete with Android aggressively, and the low-end price point war is a part of that."
For Nokia, which started life as a paper-manufacturing and electricity-generation business, the road to recovery might not be what people expect. But it's unlikely to get easier if the company is forced to keep cutting its R&D budget and facilities.
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