Nokia's Q1 2013 financial results were released today, with its increasing, but still muted, Lumia shipments grabbing all the headlines. The company's nightmare scenario however isn't failing to convince smartphone buyers to plump for Windows Phone — it's the bottom falling out of its low-to-mid tier devices.
Nokia's smartphone strategy has been well discussed, and like it or lump it, Windows Phone devices are what we'll get for the foreseeable future. But the only thing that allowed the Finnish handset maker to take that leap into the unknown and bet the proverbial farm on Microsoft's mobile OS was its relative strength in other, lower-end markets.
Nokia's Q1 results showing a notable decline in these core non-smartphone markets that have helped keep the company solvent: sales of non-smartphones dropped by around a third year on year. As result, Nokia's position is likely to be more concerning now than when it was scrambling to get its first Lumias out of the door.
Overall, Nokia's mobile shipments — smartphones and feature phones —were down by 25 percent in comparison with the same time last year, with shipments for China alone down 63 percent and the US down by a third.
While the US figure isn't really of much concern (at least in the sense that Nokia has never been a dominant force in the US) the number for China should start alarm bells ringing somewhere inside the company — it certainly seems to have resonated with the investors: since announcing its financials on Thursday, Nokia stock had fallen by around 10 percent at the time of writing.
Add in a 20 percent dive in shipments in Latin America and a 28 percent drop in the Middle East and Africa where smartphones are a tiny piece of Nokia's sales, and the low-to-middling end of Nokia's market starts to look pretty shaky.
One of Nokia's problems is that to succeed — to actually make any real money — in growing or emerging markets it needs to sell its lower-cost devices in huge numbers. With shipments of those handsets now heading downwards, it will need to reverse this trend quickly if it wants to stay relevant in any market.
For its lower-cost devices, Nokia doesn't use Windows Phone (likely because of the hardware requirements and licensing costs), instead favouring the Series 40 feature phone platform. Despite now insisting that its Asha range are smartphones, they still run Series 40.
This is the second of Nokia's problems in markets where it has seen losses over the last quarter – if you had to choose between two phones that cost about the same, would you choose the fully-fledged Android OS or the 'is it, isn't it' a smartphone S40 platform? Seems like a no-brainer to me, and with the cost of Android devices continuing to fall, it's a problem that will only continue to grow unless it's addressed.
The imminent arrival of open-source, low-cost operating systems such as Firefox OS and Ubuntu OS will only add to the number and variety of low-cost devices aimed at this end of the market too, further compounding the challenge for Nokia.
On the positive side, its Lumia sales are increasing — just not by enough to offset the declines elsewhere. However, with a higher margin and average selling price per unit for each Lumia sold, it's growing the market that brings in the cash. Perhaps we shouldn't write off Nokia just yet.