Can a Nokia Tablet Compete With the iPad?

While the whole tech world seems to stop for the Consumer Electronics Show, or CES, in January, it's by no means the most influential tech conference around. Hot on the heels of CES is the Mobile World Conference, or MWC, in Barcelona. The conference is set to take place just a week from now and will dominate tech news coverage Feb. 25 through the 28th.

With technology spending increasingly going mobile, the stature of MWC has been growing in recent years; that means more companies have shifted major product announcements to MWC. One of the hottest areas of speculation headed into next week is what Nokia  (NYSE: NOK  ) has up its sleeves. The company is still fresh into its transformation as the flagship handset manufacturer for Microsoft's  (NASDAQ: MSFT  ) Windows Phone 8. 

Rumors across the past few months said Nokia would emphasize something other than phones for the event: It was reported that the company would announce a tablet instead. Nokia tablet reports continued through last week, when researcher Strategy Analytics poured cold water on Nokia tablet talk this week, as it reported that Nokia would not unveil a tablet.  

Yet even if Nokia doesn't unveil its tablet, it's still an interesting topic for the company. Let's explore the background of Nokia's tablet development, and what factors could make a Nokia tablet a hit or a miss. 

A Nokia tablet?
There's no question that Nokia is working on a tablet. The company's VP of design, Marko Ahtisaari, had previously confirmed that one-third of his time was spent working on a tablet concept. With just about every major smartphone company having an accompanying tablet line, it would seem crazy for Nokia not to look into making one. 

Not only that, but Nokia has some potential for differentiation in the tablet space. Android companies such as Samsung, Acer, and Motorola have struggled to replicate the kind of traction Android has in smartphones in the tablet space, while Nokia would be able to focus on Windows. The company could follow in Microsoft's footsteps and offer a consumer-focused Windows RT device or a more powerful x86-based processor from Intel  (NASDAQ: INTC  ) . With Intel's more power-conscious Haswell chips slated for a June release, Nokia could first release an RT device while working with Intel on a Haswell-based tablet for later release. In critiques of the Surface Pro, most reviewers focus on the tablet's compromise between being a laptop and a tablet while failing to be as satisfying as either device. With Haswell's more power-conscious profile, Nokia could overcome these critiques by having more room to design a slimmer Intel-based tablet with greater battery life.  

Microsoft's pricing gambit
Also important is the role of the owner of the tablet platform. Tired of middling Android performance in tablets, Google  (NASDAQ: GOOGL  ) managed to find success by launching the $200 Nexus 7. It's an impressive tablet for the money, but that's entirely the problem: The price point leaves little to no room for profits. If you're an Android hardware partner, there is little incentive to design a sub-$200 tablet when you can create a smartphone that costs a similar amount to build (if not less) and can sell for anywhere from $300 to $500. 

Contrast that with Microsoft, which made a calculated gamble with the Surface. Even though the Surface RT has a bill of materials close to the $300 range, near the same level as the larger iPad, Microsoft priced the Surface at a comparable level to the iPad. The company could have priced the Surface less aggressively and aimed for no margins in an attempt to establish a market for Windows tablets; however, the company chose to leave space open for hardware partners. Microsoft has been working with hardware PC partners since the 1980s and clearly didn't want to position them out of the market with Surface's pricing. 

A buddy in IT?
Microsoft's pricing strategy is an advantage for Nokia. While Windows comes with higher costs with having to license the operating system, it also has a few unique assets. 

  • As shown with the Surface, accessories can be a key way of increasing the total sales price beyond what a tablet itself costs. An entry-level Surface sells for $500, but throw in Microsoft's smart-keyboard cover, and there's an extra $100 in high-margin sales. With people wanting a Windows 8 tablet because it's more comparable with the PC experience they're familiar with, it stands to reason that keyboard accessory attach-rates would be much higher. 
  • Information workers haven't lost interest in Windows as a tablet device. A recent study from Forrester Research found that while 33% of information workers want Apple's (NASDAQ: AAPL  ) iPhone as their next work smartphone -- versus 10% who want a Windows Phone -- interest is far higher in a Windows tablet. While 26% of workers wanted an iPad, 32% preferred a Windows tablet.  

The key point here is that there is pricing flexibility for Nokia in tablets, and it could have a rich enterprise market to sell to. While consumers might be quick to flock to tablets in the $200 to $350 price range, enterprises would afford more demand at a higher price level. 

Much more to prove
Despite these advantages, the elephant in the room is that the Surface has yet to be broadly adopted. Most reports say Microsoft moved less than a million tablets last quarter. 

To be fair, Microsoft had released only its consumer-focused Windows RT version during the holiday quarter. Its Surface Pro version, aimed squarely at businesses, saw a first-quarter launch. 

Not only that, but many businesses are still formulating their BYOD and tablet strategy. Forrester's study also showed that 79% of the workers it surveyed don't use tablets in their workplace. That could be one of the key differentiation points between Windows in smartphones and in tablets. Microsoft didn't release a version of Windows Phone with a broad offering from Nokia until late last year. Simply put, Windows Phone came out after support had coalesced around Android and iOS. Even if you're Microsoft, it's extremely hard to make a comeback when rival platforms have achieved such dominance. Developed countries like the United States have little smartphone growth from today's levels. 

Contrast that with tablets, where companies are still weighing how to position the devices in their strategy. Not only that, but there's less of a clearly defined "break" in the difference between a tablet and a laptop as there is between a laptop and a smartphone. The potential for more of a "hybrid" device of tablets running Windows 8 provides Nokia a nice niche to sell to if it can create the right product. 

Nokia's primary turnaround effort remains its Lumia line, but it's pretty clear why the company could see some interest in tablets. Add in the fact that Windows Phone is getting more interest from enterprises than from consumers, and a tablet provides a nice cross-sale opportunity with many strengths. 

It's a long road toward tablet success, but any Nokia tablet doesn't come without opportunity.

Should you bet on Nokia's turnaround?
Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. 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 whether the company is a buy or sell. To get started, simply click here now.


Read/Post Comments (13) | Recommend This Article (51)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 17, 2013, at 4:33 PM, RandomMeaning wrote:

    "The company could have priced the Surface less aggressively and aimed for no margins in an attempt to establish a market for Windows tablets; however, the company chose to leave space open for hardware partners."

    Somehow, I don't think those "partners" are gratefully sending thank you letters to Microsoft saying "thank you for allowing us to compete with you in tablets at a lower profit". The whole thing reads like one of those platitudes which sound nice but in reality don't hold up. Which is why HP is reported to be creating an Android tablet. Seems like Dell is a bit busy going private (with the help of Microsoft) to do much either direction.

  • Report this Comment On February 17, 2013, at 4:41 PM, RandomMeaning wrote:

    "As shown with the Surface, accessories can be a key way of increasing the total sales price beyond what a tablet itself costs. An entry-level Surface sells for $500, but throw in Microsoft's smart-keyboard cover, and there's an extra $100 in high-margin sales. With people wanting a Windows 8 tablet because it's more comparable with the PC experience they're familiar with, it stands to reason that keyboard accessory attach-rates would be much higher. "

    Wait. What? Creating a device where highly over priced add-ons are required to make it basically functional is an advantage? Sure that sounds nice, if you can actually sell them beyond the most lovingly devoted Microsoft fans. So far, it doesn't appear that the rest of the world is buying it. When you got down to it, it's a highly over priced and under featured lap top which kind of works as a rather limited and poorly functioning tablet if absolutely necessary. While almost everyone who could afford such a device has a smartphone, laptop, and probably a desktop too. Which is why the iPad sells well because it functions very well in as a tablet serving a purpose different from the other devices.

  • Report this Comment On February 17, 2013, at 4:57 PM, henrystar wrote:

    Just buy Apple, folks, and relax. There's a lot of goofy stuff out there.

  • Report this Comment On February 17, 2013, at 5:07 PM, RandomMeaning wrote:

    "Information workers haven't lost interest in Windows as a tablet device. A recent study from Forrester Research found that while 33% of information workers want Apple's (NASDAQ: AAPL ) iPhone as their next work smartphone -- versus 10% who want a Windows Phone -- interest is far higher in a Windows tablet. While 26% of workers wanted an iPad, 32% preferred a Windows tablet. "

    Right. Forrester Research. The firm which is frequently hired by Microsoft to prepare research on their behalf would never skew things in a direction which might favor one of Microsoft's major initiatives, right? Here's a fun little exercise, run the following terms through your favorite search engine and see how many research topics Microsoft has commissioned Forrester Research to prepare for them.

    forrester research microsoft consultant

    That's not to say that the information they produce is false or has no value. But I certainly would not use them as primary evidence without additional facts to back it up. Primary evidence such as, oh, I don't know. Maybe the number of Surface RT and Surface Pro devices sold (not shipped) so far. Microsoft has always been eager to publish news within a day when they have something to brag about on a wide variety of topics. Why haven't they done so for this?

  • Report this Comment On February 17, 2013, at 5:16 PM, RandomMeaning wrote:

    "The key point here is that there is pricing flexibility for Nokia in tablets, and it could have a rich enterprise market to sell to. While consumers might be quick to flock to tablets in the $200 to $350 price range, enterprises would afford more demand at a higher price level."

    Here's a question: why didn't Microsoft have Nokia, their star mobile device partner, build and sell Surface instead? They already had the advantages of hardware expertise (pretty much everyone agrees that Nokia has usually done quite well on the hardware side of their offerings) and a global distribution network (some people complained that distribution is what held Surface back . . . I disagree but that would have addressed their concern). With the added bonus of keeping Microsoft from directly competing with their "partners".

    Answer: Microsoft wants all the profits for themselves. Everyone else can hang. Of course, that also means they are taking on all the responsibilities and risks of supply, distribution, and manufacturing. No more passing the blame on to their partners. Microsoft is fully responsible for their own results, both positive and negative.

  • Report this Comment On February 17, 2013, at 5:18 PM, twolf2919 wrote:

    I am echoing others' sentiments: the trains for both smartphones and tablets have already left the station and they're being powered by Android and iOS. I don't buy Forrester's research that organizations/enterprises are still on the fence re. tablets. Why would they foist a Windows tablet on its employees when those employees are already totally comfortable with Android and iOS interfaces? It's not like these tablets will be used to do extensive word processing or spreadsheet creation - the employees that need those in a portable form factor are already served by laptops and ultra laptops.

  • Report this Comment On February 17, 2013, at 5:24 PM, RandomMeaning wrote:

    "Contrast that with tablets, where companies are still weighing how to position the devices in their strategy. Not only that, but there's less of a clearly defined "break" in the difference between a tablet and a laptop as there is between a laptop and a smartphone. The potential for more of a "hybrid" device of tablets running Windows 8 provides Nokia a nice niche to sell to if it can create the right product."

    That's nice. Question is, how big is the niche? And how fun will it be trying to gain an edge competing against the very company which is providing the OS and the software? For which Nokia must also pay a fee? Ooops, there goes the margin again!

    Also, I'm not totally convinced every smart phone OEM has to produce a tablet. I have nothing against them trying, I just don't think it's mandatory.

  • Report this Comment On February 17, 2013, at 5:32 PM, RandomMeaning wrote:

    "It's a long road toward tablet success, but any Nokia tablet doesn't come without opportunity."

    What? Is that really how you want to sum up your article?

    Personally, I'm very disappointed with the whole Nokia/Microsoft partnership. Nokia was once a great, independent company. Now they are a highly dependent subsidiary of Microsoft which has lost massive market share and profits as a result. Maybe that would have happened anyway. Who knows? I do know it surely happened with Microsoft's help.

    Here's a question to ask: what happens to Nokia if Microsoft decides to create their own smartphone? Microsoft wouldn't have to stop supporting Nokia, just give one or two advantages to their own phone. Where does that leave Nokia?

  • Report this Comment On February 17, 2013, at 5:48 PM, cpemail wrote:

    It is Apple that can't compete, it's rotten. Apple can no longer compete with Samsung and Nokia on real products. Steve Jobs said that one will need to grind his fingertips to use smaller Samsung tablet. He will fire everyone at Apple for loosing the big game and moving into toys. No wonder institutional investore are selling out, and individual are moving their 401k into non Apple funds. The dropping stock tells the storry of the Rotten apple.

    Most of the people in the stores are paid by Apple to spend time in the stores to just "create demand".

    You may not know but Apple was caught paying people to stay in line at the store fronts to create demand. If you look closely, you will see that most people don't buy, and thouse on the payroll never leave the store.

  • Report this Comment On February 17, 2013, at 7:27 PM, marv08 wrote:

    @cpemail: "Apple can no longer compete with Samsung and Nokia on real products."

    Huh? Even the two year old iPhone 4 outsells Nokia's smartphone line-up. And Samsung's best-selling iPhone copy does not even have half of the sales of the iPhone 5. You must live in an alternate reality... And Apple is making (about three times) more money on these devices than Samsung, Nokia and the rest of the smartphone industry combined. That's your definition of "can't compete"? Nobody can compete with Apple. That's more like it.

    ===

    Windows RT is a complete and utter flop. MS can't even recoup their marketing expenses with it. Why would Nokia make the suicidal move to invest in such a device now? They won't.

    They will either wait and see if there will ever be a Windows RT market, or they will jump in on an "Pro" type device, once Intel has more appropriate chips available (so, likely not before Q3/Q4).

    The problem with the latter is that Nokia has no experience in building computers (their netbook has been the flop of the century), and that they have neither distribution nor support for computers in place - competing with the user satisfaction and retail champ Apple without these building blocks is a guarantee for failure. No idea if they will do it, just sure it could (and likely would) kill them.

  • Report this Comment On February 19, 2013, at 12:23 AM, never2dull4u wrote:

    This article is reek with flaws.

    To sum up, any tablet that is being introduced by Nokia is nothing more than a brick. With the lack of apps, it's already DOA.

    Nokia can learn a thing or two from RIMM Playbook. Time to move on. Another "me too tablet" will be suicidal especially for a company that is on dire need of cash flow.

  • Report this Comment On February 19, 2013, at 7:22 AM, cpemail wrote:

    Apple can no longer compete with Samsung and Nokia on real products. Nokia is the leader, and Apple and Samsung are trying to follow with similar products...too late. This is why most of the people in the Apple stores are paid to spend time in the stores just to "create demand". No wonder institutional investore are selling out, and individual are moving their 401k into non Apple funds. Steve Jobs said that one will need to grind his fingertips to use smaller Samsung tablet. He will fire everyone at Apple for loosing the big game and moving into smaler/cheaper phones and watch like toys. The dropping stock tells the storry of the Rotten apple. Apple was caught paying people to stay/sleep in line at the store fronts to create demand. If you look closely, you will see that most people don't buy, and thouse on the payroll never leave the store.

  • Report this Comment On February 21, 2013, at 11:52 AM, Dingmanna wrote:

    Everyone keeps talking about the "products" and whether they can compete with Apple. First of all I do feel the fit, feel, and function of Apple products are superior, but it is all about the ECO-SYSTEM folks! Buy another tablet and soon you will find there aren't near the number of apps available as you can find on the iTune's store. Plus as you look to manage all your media; music, photos, video, etc. and soon it will be integrated into your home entertainment....Game over Apple will be a clear winner!!

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