Nokia 'very interested' in tablets, but don't hold your breath

A Nokia executive hinted that the phone maker is 'looking at' tablets. But there are at least three major hurdles for Nokia to consider, including its depleting financial position and an already aggressive mobile market space.
Written by Zack Whittaker, Contributor

Nokia said at the launch of its latest Lumia 925 smartphone on Tuesday that it is "very interested" in tablets, but did not dish out any specifics or details.

A Nokia-branded tablet could be with us — albeit eventually.
Image: CNET

"We're very interested in tablets, and that's an area we're looking at," Nokia executive vice president for smart devices Jo Harlow told ZDNet's sister site CNET.

As CNET noted, Nokia is the only major smartphone maker that has yet to dip its toe into the warm, inviting waters of the tablet market. With PCs on the decline and tablet shipments soaring through the roof, Nokia may have missed a beat.

"I don't have any product news I can share," said Harlow. It's a similar line of rhetoric that Harlow took earlier this year at Mobile World Congress (MWC) in Barcelona, where she said the company is "keeping our options open."

Nokia first started experimenting with tablets during the early 2000s. By this point, these slate-like devices were an ill-defined range of portable machines, some with cellular technology (just think about the first Windows XP-based tablets, dubbed "UMPCs") and some without. Eventually, the iPad carved out the market, and others followed suit not too long after.

But Nokia never followed up once the iPhone software ported to its younger, larger counterpart, and then Android landed on the scene.

It's not to say that it should be ruled out completely, however. But the likelihood that Nokia will jump into the tablet market is low, given its dwindling financial position, corporate relationships, and, above all else, the state of the market as it stands today.

Let's explore those factors a little deeper.

Is Nokia's financial position strong enough to develop and manufacture a tablet?

The phone maker is still dishing out devices left, right, and center. In fact, just as it did with its feature phones during the late 1990s and early to mid 2000s, it seems that Nokia has been churning out a new Lumia every other week.

Since the Lumia first arrived in November 2011, there have been more than 10 major iterations released, with some minor, carrier-related variants in between. It's part of the company's efforts to realign its smartphone business following the "ramping down" [PDF] of Symbian and MeeGo.

During that time, its "smart device" sales increased overall by just 6 percent from 6.6 million devices (including 4.4 million Lumia smartphones) to 6.1 million devices (including 5.6 million Lumia smartphones.) Nokia's cash position was €4.4 billion in Q4 2012, only a couple of months after it launched its Lumia range at Nokia World in London, to €4.5 billion in Q1 2013.

In a little over one year, Nokia's cash position has remained mostly flat. It's spending much of what it has on its restructuring efforts in order to conserve, above all else, its cash position.

The company is just about sailing through with only modest increases in sales; it's not really making any money. As a result, its research and development in its "smart devices" unit is down by 37 percent year on year during Q1 2013, according to its latest earnings statement.

The bottom line: Nokia doesn't have enough cash to research, develop, and produce a tablet. If it does, we can expect to see an interesting ding to its financials at the subsequent earnings release.

Nokia's quandary: Is Microsoft "friend" or "frenemy"?

Microsoft's relationship with Nokia is key to the phone maker's survival. Surface sales aren't expected to be good, even after more than six months of being out on the market and available to buy. This is in spite of Windows 8 reaching the 100 million licenses sold milestone.

Microsoft not only didn't break down the figure, but "sold" doesn't actually mean "shipped."

A Bloomberg report, citing sources who declined to be named, said Microsoft has sold in the ballpark of 1.5 million Surface tablets. Broken down, that's just over 1 million Surface RT tablets and 400,000 Surface Pro tablets.

Given the relationship between Microsoft and Nokia, it's almost certain that the phone-turning-tablet maker would adopt Windows 8 or Windows RT as its software. Nokia chief executive Stephen Elop, a former Microsoft executive, said that at least for its smartphone range, it's Windows Phone or bust, and there was no "plan B."

Given Nokia's existing allegiance with Microsoft, any tablet it does launch will almost certainly run Windows 8 or Windows RT. Microsoft can't force Nokia to do anything. There may be a strong implication to go a certain way, but Nokia isn't Microsoft's underdog. It has its own shareholders, after all. The phone maker could simply be waiting it out to see how well Microsoft's tablet endeavor is going before jumping in head first as the rescuer in reverse, just as Elop told Australian media in February.

If Nokia does embrace the tablet market, it will likely have to be more beneficial to Microsoft than a hindrance. It all depends on whether it does, in fact, embrace Windows for its tablets.

Nokia could embrace Android if it wants to take a stab at gaining initial tablet market share, but it runs the risk of damaging its existing relationship with Microsoft. But also, the Android-based tablet market is already saturated, and Nokia would not be able to differentiate its own tablets from the existing low-margin hardware pool.

On the flip side, Nokia knows it won't be able to compete with Microsoft's Surface devices — in spite of not knowing what its sell or ship-through rate is — and would be fighting an uphill battle with practically its only "friend" left in the mobile industry.

The market place is swamped with tablets: Is there room for one more?

The answer is probably not. Like the smartphone market, the tablet space has replicated the duopoly at the top of the rankings, likely for the same reason: Both Apple's iOS and Google's Android were popular on smartphones first.

The latest IDC figures show that Apple holds the top spot in tablet manufacturing, with just shy of 40 percent of the market share, while Samsung holds nearly 18 percent. Microsoft has just 1.8 percent with 900,000 tablet shipments in Q1 2013 — which comes roughly in line with estimates reported by Bloomberg.

But software remains the most important and prominent differentiator between tablets.

IDC said that in respect to total tablet platform share, Android and iOS hold 96 percent. There is almost no room for manoeuvre, with Windows (including Windows RT) holding just 1.8 percent of the share, with 300,000 shipments.

Again, there's little space for any competitor to gain meaningful traction in the tablet space, although Microsoft does have the third-place spot lined up, even if it is a tiny fraction of the overall share. Smaller tablets — devices between 4 inches and 7 inches — may prove more lucrative if Nokia decides to aim a punch in the still developing mid-sized tablet space.

The Financial Times (paywall) reported that Nokia is planning to build a "phablet" — a mid-sized tablet between the typical size of a smartphone and a tablet — with a ship date of mid-2013. Microsoft has already confirmed that mid-sized Windows 8-powered tablets will be arriving "in the coming months" — suggesting a mid-2013 release. It could be that considering the relationship between the two companies, Nokia may be given the first stab at the Windows 8 "phablet" line-up.

Even with a phablet, platform share would be low, and could barely make a dent in the wider tablet market. It wouldn't be worth the research and development costs — a slightly larger phablet wouldn't be a far stretch for the well-established smartphone maker, even if a tablet is — and its time, cash reserves, and anything (albeit not much) left over from its quarterly earnings would be better spent on its continued push in the Lumia line-up.

Because eventually, with enough devices out on the market, there's hope that one might just take off.

The bottom line

Everybody thought Google bought Motorola Mobility for $12.5 billion — after restructuring charges, now at about $13 billion — for its patents. Even then, a court ruled that the patents turned out not to be worth the "billions" they were first thought to be.

That is, unless it was to build its own smartphone, so it could control its own actual hardware engineering and create the "purest" form of smartphone it could make.

If Microsoft were to buy Nokia — the rumors came in thick and fast, and were ultimately shot down, at least for the time being — the software giant would likely use the phone maker to produce Surface tablets. It would be a manufacturing outlet by proxy.

Because if Microsoft eventually does buy the company, it'll be for the same reason that Google bought Motorola: For the patents first, and everything else second. That's probably the eventual end game.

Nokia probably won't become a tablet maker anytime soon, unless it gets its smartphone market share back up to such a point where it gains relevance once again (and revenue to support the endeavor), or it gets bought out by Microsoft. Right now, it's a premature move that would be far too risky to take on by itself.

Without some kind of major benefactor — a tablet "sugar daddy" — Nokia shouldn't be building tablets.

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