Great hardware just isn't enough to maintain mobile dominance. That was true last decade, when Motorola (NYSE: MOT ) climbed to the top of the mobile pile on the back of its svelte RAZR phone, only to fall back when phones with more impressive software hit the scene. Now with the release of its new flagship N8 smartphone, struggling Nokia (NYSE: NOK ) is hoping to turn its fortunes around, but in spite of some great hardware features, the N8 probably won't enjoy a breakout success, with a software experience that still trails Apple's (Nasdaq: AAPL ) iPhone and Google's (Nasdaq: GOOG ) Android.
A great camera ... but …
One factor that's come up repeatedly in reviews of the N8 is some of the novel hardware and media software it packs. The phone contains an imposing 12-megapixel camera. That's good enough to replace almost any point-and-shoot camera you're toting around. The phone also has other features that should keep gadget-heads happy, such as an HDMI-out port. However, the hardware would have been more impressive if the phone hadn't suffered from numerous software-related delays that allowed other phones with more impressive specs to hit the market in the meantime.
But all things considered, the real factor holding the N8 back is its operating system. The N8 is the first Nokia phone to run the company's new Symbian^3 operating system, but reviews have been skeptical about just how large a step forward the new Symbian is. To quote CNET Asia:
While it's easy to get carried away with the enhancements of Symbian 3, it also serves as a reminder that nothing else has changed fundamentally. We are still looking for an overhaul in the Symbian user interface, and that's still many months away. Symbian 3 is a stop-gap solution, just as Windows Mobile 6.5 was for Windows Phone 7. It may be better, but meanwhile, competing software [is] also improving at the same time.
The bottom line is that Symbian still lags its key competitors in the smartphone game. Its user interface is lacking, the browser feels archaic, and Nokia's need to support a long legacy of differing phones keeps its app selection well behind what its competitors offer. Although Symbian^3 is a step forward, it's still not ready for prime time.
High-end smartphones, high-end profits
One of the interesting trends in the mobile revolution is how little market share has mattered. Although Nokia still controls a 41% market share on smartphones, its profits are nowhere near Apple's. According to estimates from Canaccord Genuity, in the first half of the year, Nokia, LG, and Samsung combined to sell more than 400 million phones but made only 32% of the mobile industry's profits. In that same period, Apple sold only 17 million phones but made 39% of the industry's profit!
That's because Nokia's phones sold for just $85 on average last quarter, a level that leaves little room for profits. Compare that with Apple, which enjoys an average $600 selling price, despite researcher iSuppli's estimate that the components inside it cost only $187. Those kinds of margins are the envy of the mobile industry, and the N8 isn't far behind. iSuppli estimates that the N8 also has $187 in component costs and sells for $549 without contracts.
Say it with me, Nokia shareholders: If you want Nokia to stem its rapid losses in market value, it needs to be relevant in high-end smartphones.
Unfortunately, the N8 phone won't bring about the hoped-for resurgence.
Chips: another way to profit
Another way to look at the mobile boom is to consider companies vying for space inside all those smartphones. Tearing open the N8 shows the big winners to be Broadcom (Nasdaq: BRCM ) , Texas Instruments (NYSE: TXN ) , and Synaptics (Nasdaq: SYNA ) .
Synaptics supplies the touchscreen controller. Texas Instruments' name isn't a surprise, since it's had a long history with Nokia. However, Broadcom gets a nice win with its media processor. Most of the attention in the mobile-processing space goes to Qualcomm, Texas Instruments, Samsung, and others, but it looks as though Broadcom is managing to carve out its own niche. I don't think the N8 will generate enough sales to move the needle for any of the component suppliers inside, but Broadcom's presence here points to its continuing strength.
Although Nokia says presale orders have surpassed expectations, the N8 is still behind the current smartphone leaders. Simply put, Symbian still has a lot of work to do, and without a great operating system, Nokia will continue to be a laggard in high-end smartphones. And with high-end smartphones driving the profits in the industry, that means more pain for Nokia shareholders.
Can the next-generation operating systems -- Symbian^4 or the Linux-based MeeGo -- change Nokia's fortunes? Leave a comment with your thoughts on Nokia's future below! And if you haven't had a chance, be sure to read this article detailing how fellow Fool Jeremy Phillips missed out on more than $100,000 in gains through wrong-headed selling.