Nokia, It's Time to Make a Change If You Want to Survive

Nokia (NYSE: NOK  )  is really feeling the heat in the super-heated smartphone race. It recently lowered its estimates for sales, essentially admitting that the critical (and profitable) smartphone market continues to slip out of its grasp despite being an early leader in the space. Its market presence in smartphones continues to center around Europe, but even there its share is declining. It has been largely unable to penetrate the critical North American market, nor has it had major impact on the Far East smartphone market.

Nokia, it's time to do something drastic.

It's time to completely reevaluate your strategy. A key part of this change of strategy should be the divestiture of your almost total reliance on Symbian. Business users, the core of the smart phone market, are abandoning the Symbian OS for Android, iPhone, and BlackBerry. Your reliance on Symbian is unsustainable if you want to turn around your shrinking market share in smartphones.

Why is Symbian such an issue for Nokia?

Symbian, although recently open sourced, is still being driven almost exclusively by Nokia. And Symbian needs a total revamping before it becomes even closely competitive to the likes of Android and Apple's (Nasdaq: AAPL  ) iPhone. Nokia is putting a great amount of resource into Symbian's rebuilding. A new version of Symbian (Symbian 3) will be released shortly. However, this version represents mostly cosmetic surgery. The real major upgrade, Symbian 4, is still 6-9 months or more away. But even with this major upgrade, it is unlikely that many major vendors will be relying on the OS for their smart phone strategy in the long term. Even a stalwart Symbian vendors like Sony-Ericsson is moving away from the platform. That puts Nokia in control of an open source OS that it uses by itself. And Nokia cannot control an entire ecosystem on its own, unlike Apple who is able to do so with its iPhone platform, at least for now.

Nokia and Intel's (Nasdaq: INTC  ) joint announcement a few months ago of their work on an open-source mobile OS, MeeGo, for phones, netbooks, entry-level desktop computers, in-vehicle systems, and Internet-connected TV sets, is a good sign. MeeGo, which is based on Linux, is a combination of Intel Moblin OS, which the company developed for users of its Atom chips, and Nokia's Maemo, which it developed for high-end tablet-like platforms and ultimately smartphones. However, Nokia has been vague on where MeeGo fits in its long term strategy.

Nokia, here is what I believe you need to do, and do right away.

First, mothball your engineering efforts on Symbian and put it into mature, legacy mode. You can continue to use it for a limited time in S60 platforms until the next major release of strategic product is available. Next, I would immediately shift all efforts in two parallel directions. First, base a current line of smart phone devices on Android with a customized Nokia UI (much like HTC does with Sense and Moto does with Blur). This should allow you to get to market very quickly with a line of compelling smartphone devices that are competitive while giving current Nokia users a migration path with a familiar UI paradigm. 

Second, you should immediately state that your direction for future, mid- to high-end and performance devices (not just the N-class and tablets) will be built around MeeGo, and apply enough resources to get an advanced OS ready for launch on a number of devices no later than 12 months from now. Sooner would be much better. And you should start building an app developer ecosystem now, perhaps working more closely with Intel who has a vested interest in making MeeGo, which runs on its Atom chips, a highly competitive mobile platform. And other vendors, especially in the Far East are now taking the platform seriously enough to make an investment in MeeGo for smart devices.

As a result of this strategic realignment, Android becomes your feature phone on the lower end, and MeeGo becomes the performance platform where you can innovate and add real value. Both platforms will have true multi-vendor support, and you will not be required to be the sole provider of innovation and implementation -- a big market advantage for you. The days of needing to be totally vertically integrated, owning your own OS are pretty much over (unless you are Apple). Moto learned this lesson and is now on a roll.

A couple of years ago, I recommended that Symbian and Android should merge. There would have been benefit to the maturity in drivers and phone operation that Symbian offered to Android. I believe now it is too late and Symbian is doomed to fade away over time. Nokia, it's time to cut your losses and move on. If not, you will be relegated to a me-too vendor in the smart phone space where most of the profits lie, and be forced to primarily compete head on in the cutthroat low end consumer device space against the many up and coming vendors from the Far East. That's not a winning strategy if you want to remain profitably among the top three vendors worldwide. Time is of the essence before the market passes you by.

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Jack Gold is the founder and principal analyst at J.Gold Associates, an information technology analyst firm based in Northborough, Mass., covering the many aspects of business and consumer computing and emerging technologies.

Intel and Nokia are Motley Fool Inside Value selections. Apple is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Intel. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


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