Nokia Fumbles in China -- Again

With the Chinese New Year well under way, Nokia  (NYSE: NOK  )  was hoping to benefit from one of China's biggest retail weeks of the year. But delivery delays in the country will hurt sales of Nokia's Lumia phones, leaving Nokia yet another step behind in China.

Entering the Chinese market, for a second time
Nokia isn't a newcomer in the Chinese handset market, but it sure feels like it. After 20 years of exposure in China, complete with distribution networks and sales teams, Nokia is a little more than a blip on the country's smartphone screen. Just over two years ago Nokia's stronghold on the Chinese handset market was at 50% -- today it sits around 1%.

After Apple  (NASDAQ: AAPL  )  and Google  (NASDAQ: GOOG  )  swept the smartphone scene, Nokia abandoned its Symbian OS and struck a deal with Microsoft  (NASDAQ: MSFT  )  for its Windows Phone OS. It's been a slow path to recovery for Nokia, while Apple holds about 5% of the Chinese smartphone market share and Google's Android accounts for two-thirds of all smartphones in China. Nokia is fighting for relevance in the largest handset market in the world, but it's coming up short.

The latest hiccup Nokia has faced is the lack of supply for its flagship Lumia 920T on China Mobile  (NYSE: CHL  ) . Nokia's $738 high-end smartphone was supposed to be available for Chinese consumers just in time for the Chinese New Year. But supply limitations are hurting Lumia sales. Bloomberg reported that 90,000 Lumia 920T phones were ordered, but only 30,000 were able to be shipped, and some China Mobile stores didn't have any in stock. Although it shouldn't come as too much of a suprise that Nokia couldn't deliver during one of China's biggest retail spending weeks -- the company said last month that supply constraints were hurting handset sales -- it still shows that Nokia is facing major problems in China. According to a recent report by Morningstar, sales of Nokia phones in China were down 20% and revenue was down by the same percentage, sequentially. 

Finnish-born, American bent
Nokia's slow sales and low revenue in China aren't just the byproduct of stiff competition in the country, it's also because the company has focused much of its attention on North America for the past two years. It's yet to be seen whether that strategy has paid off for Nokia, considering sales of smartphones in the region were far shy of Apple and Samsung devices, as the graph below shows.

Source: Bloomberg.

Nokia came in with just 700,000 smartphone sales in North America this past quarter, while Samsung and Apple gobbled up a total of 35 million units sold. Nokia's president, Chris Weber, told AllThingsD back in 2011 that, "We'll develop for North America and make the phones globally available and applicable." So far, it seems Nokia has kept to that strategy, but with with China leading the world as the largest smartphone market, Nokia will have to do more than it's doing in the U.S. and China in order to earn back market share. 

Betting on Nokia
Obviously, Nokia is having some hard times etching out its place in China, but the fact that the company struck a deal with China Mobile to sell the Lumias is a big plus for the company. Apple has yet to work out a deal with China Mobile to carry the iPhone. If Nokia can get its smartphone supplies under control, then the partnership between the Nokia and China Mobile may actually start to pay off. Chinese consumers are already extremely familiar with Nokia's brand, so it's up the company to prove to them that the Windows Phone OS is the better choice over iOS and Android.

The biggest bet for Nokia, and its investors, is that the Windows Phone OS is what smartphone consumers want. Nokia's life is dependent on the OS and investors should continue to watch how the OS is received worldwide. Nokia can't afford to have its sales in China and America lag far behind for too long. Slow sales anywhere for Windows Phone handsets over a prolonged period could eventually spell doom for the OS -- and Nokia.

Arguably, the Windows Phone OS could become a formidable opponent to Android and iOS -- and Nokia investors need it to be. With the fate of the company hinging on the operating system, it's more important than ever to keep up to date with how consumers respond to Nokia's big bet on the OS. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.