Nokia Bets It All on Mango

Nokia (NYSE: NOK  ) plans to stop selling feature phones and Symbian-based smartphones in North America to focus on selling handsets running Microsoft's (Nasdaq: MSFT  ) Windows Phone. It's a risky move, but a narrowed focus might just be what Nokia needs.

Dumbphones: why bother?
Dumping feature phones -- the basic phone that makes calls, sends text messages, and takes the occasional photo -- makes a lot of sense. They don't have much of a future in the United States. The market for feature phones does still exist -- I'm still rocking one -- but it's shrinking. As of May, the number of mobile costumers using smartphones grew to 38%. And 55% of costumers purchasing new phones opted for smartphones, up from 34% a year earlier.

But even if feature phones weren't on the decline, their thin margins would make it hard to justify an investment in them. Ask any feature-phone owner why he or she chose that phone, and you'll probably be told that "it was the free one." I fall on the big-spender end of feature-phone ownership: For my current phone, I paid $65.

I'd think that with such a low top-end price on feature phones, and with no chance that the customer will tack on a pricey data plan, wireless carriers would place a limit on how much they're willing to pay manufacturers for giveaway handsets. Throw in the fact Nokia has never gained traction here -- its stateside feature-phone market share is dismal, and the category requires massive scale to achieve profitability -- and you can see why a feature-phone exit makes sense.

Why not join the Borg Collective?
Much like dumping feature phones, dropping Symbian is also a smart move. At last count, the OS is battling Hewlett-Packard's (NYSE: HPQ  ) WebOs for fifth place in the market, with an underwhelming 2% of all smartphones sold. With so little ownership, and no other manufacturers using the OS, few developers would feel compelled to develop the apps that have become so important in attracting new users.

Google's Android has captured 40% of the market, so why wouldn't Nokia go that route? The short answer is that Android is too popular. To escape irrelevance, Nokia needs to do something to stand out. That's just not possible when it's going up against manufactures like Motorola Mobility (NYSE: MMI  ) and HTC. Even if Nokia made the best Android phone to date, it would still just blend in.

Although Windows Phone's current 5.8% market share doesn't inspire much confidence, I see a lot of potential. Mango, the system update expected to arrive this fall, has received glowing early reviews. Its integration with Office 365 and Xbox Live should form the foundations of an ecosystem similar to Apple's iOS.

A handful of manufacturers already make Windows phones, but they're almost throwaway devices --  cheap phones released to test the waters for the OS. Nothing stands out as a flagship device. By putting all of its resources in North America toward selling Windows Phones, Nokia could fill that gap. It could act like HTC, which helped establish Android as a viable operating system, and became the operating system's top manufacturer.

Foolish takeaway
In theory, Nokia's decision to focus on Windows-powered smartphones makes a lot of sense, but it's still a gamble. Everything depends on the first phones it releases. If the company can produce the phone that gets consumers excited about the operating system, that might be enough to make Nokia a competitor again.

If you want keep an eye on Nokia to see how its new strategy works out, add the stock to your watchlist, and we'll keep you up to date on all the latest developments.

Fool contributor Patrick Martin owns no shares of any of the companies mentioned here. You can follow him on Twitter, where he goes by @TMFpcmart03. The Motley Fool owns shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Apple and creating bull call spread positions in Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (6)

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  • Report this Comment On August 14, 2011, at 6:31 PM, techy46 wrote:

    "A handful of manufacturers already make Windows phones, but they're almost throwaway devices -- cheap phones released to test the waters for the OS. Nothing stands out as a flagship device"

    What a stupid comment. The HTC Focus is a pretty nice device. Granted it's not as slick as the iPhone, but the N9'ish devices from Nokia will fix all that. What's more imporant is Windows 8 will provide for all devices running Microsoft including Desktop, Notebooks, Phones and tablets to provide the same UE.

  • Report this Comment On August 14, 2011, at 9:16 PM, gslusher wrote:

    "The market for feature phones does still exist -- I'm still rocking one..."

    Look up "non sequitur." What YOU are currently using is totally irrelevant to the MARKET, which is about sales of new phones.

    If you're still using a "feature phone," perhaps you should refrain from writing about what you know nothing about.

    @techy46:

    Will the mobile/phone version of Windows 8 use a cursor and a pointing device? If not, it won't provide the same "UE," by which I guess you mean "user experience," though why you didn't just type it out beats me.

  • Report this Comment On August 14, 2011, at 10:54 PM, thethreestooges wrote:

    window phones will be the only one flawlessly integrated into Office softwares and xbox live. Your phone becomes a mini office and entertainment center.

  • Report this Comment On August 14, 2011, at 10:55 PM, mattmosa wrote:

    I owned Nokia long time, finally cut them loose. Yup it does seem as if Nokia has painted itself into a corner alright, with no good way out, yet with this new Windows phone, just maybe.

    Nokias' back is against the wall and they're going ''all in'' on the new phone. Win or lose I gotta root for Nokia here. Opening a new position isn't outta the question with some good news.

    Smart phones?

    From what little I understand, to be utilized to full potential the smart phones need the data plan.

    Oh great,...... another plan.

    Tack that onto a wireless phone plan, and a computer cable internet access plan, and a cable tv plan, maybe an entertainment plan and any other plan thats out there and you're starting to talk real money.

    I know that there are people out there that genuinely need that level of communication, but I'm not one of them. I think there are many people that don't need that level of ''in touch'' or that level of ''smart''.

    I don't need a ''smartphone'', I need a ''smartenough phone''. For the price I don't think smartenough phones are dead yet. Maybe there's no money in building them or running them yet I would think a large market will remain for them.

    Or maybe I'm just too cheap.

  • Report this Comment On August 15, 2011, at 1:28 AM, Clint35 wrote:

    I think it's an even bigger gamble considering the name is mango. Who came up with that? And how come nobody else said, "Wait a minute. Mango? You're serious?"

  • Report this Comment On August 15, 2011, at 2:40 AM, dastaub22 wrote:

    I think it's an even bigger gamble considering the name is mango. Who came up with that?

    Agreed, who would be silly enough to name a technology after a fruit?

  • Report this Comment On August 15, 2011, at 6:22 AM, blesto wrote:

    <<<"Agreed, who would be silly enough to name a technology after a fruit?">>>

    Macintosh Apple?

  • Report this Comment On August 15, 2011, at 9:29 AM, pmart wrote:

    Mango is just the development code-name. The official title is Windows Phone 7.5.

  • Report this Comment On August 15, 2011, at 1:50 PM, chadscards1274 wrote:

    So reading the article and comments has taught me one thing so far. 1. There may be some holes in the article's arguments or in the writers knowledge. 2. Some people who decide to comment need a little lesson in manners.

    Setting that aside I'm not sure I agree with the author's thought that Nokia can't stand out against Motorola and HTC. Samsung also builds phones based on Android and they seem to do a pretty good job of standing out. Going all in with an operating system that commands less then 6% market share seems to be not a smart move. I would liken this to a PC manufactuer going "all in" with say Linux a few years ago. No matter how good the system is there is something to be said for going where the users and dollars are. If you ask me Nokia should have gone at least 1/2 into the Android market and the other 1/2 into Mango. At least this way if Mango isn't a tremendous hit they would be able to go ramp up production of whatever their Droid equivalent would be.

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