Is Nokia Getting Desperate?

Poor Nokia (NYSE: NOK  ) . It was only about three years ago that the company felt the "smartphone wars" were done and over with. Its favored platform, Symbian, had left Microsoft's (Nasdaq: MSFT  ) Windows Mobile and Palm's (Nasdaq: PALM  ) Palm OS in the dust, and the Finnish giant must have figured that it could just deal with rival phone manufacturers -- who, of course, would mostly be Symbian licensees -- by using its historical strengths in manufacturing efficiency and mass-market phone design.

A stumbling smartphone business
Apple (Nasdaq: AAPL  ) and Research In Motion (Nasdaq: RIMM  ) clearly had other ideas. And even now, it's hard to say that Nokia has figured out how to properly respond to the giant monkey wrench these two firms threw into its best-laid smartphone plans. Nokia's attempts to slow down RIM's manic growth among enterprise users and messaging addicts, headlined by its E-Series Symbian smartphones and Nokia Email service, just lacked the punch delivered by the seamless hardware, software, and service integration delivered by RIM's Blackberry platform. And the less said about Nokia's attempts to counter the surging popularity of the iPhone with its N-series phones, the better.

What's especially unsettling about Nokia's smartphone stumbles is the attitude it's displayed as Apple and RIM steadily gained ground -- an attitude that's been equal parts dismissive and stubborn. When the iPhone was first announced, a Nokia exec infamously expressed skepticism about its potential as a mass-market device. It wasn't until December 2008 that the company released its first touchscreen N-series device, the N97. And it wasn't until last year that it realized that just maybe Symbian wasn't cutting it in the eyes of consumers as a rival to the iPhone, and announced its N900 phone based on the Maemo operating system, along with plans for a new version of Symbian to be released somewhere in 2010.

Yet even now, a slow-and-steady approach seems to be the order of the day for Nokia: The N900 is, by the company's own admission, not a mass-market device, and even the head of Nokia's mobile division said that the company won't fully catch up to Apple and RIM until 2011.

All the while, we can expect Apple and RIM to continue gobbling up market share, and create customer loyalty through their growing app bases. And with Google's Android also joining in on the action, and drawing the support of Symbian licensees such as Motorola (NYSE: MOT  ) , Sony Ericsson, Samsung, and LG, the 3% annual smartphone unit share decline that Gartner believes Nokia saw in Q3 2009 -- a number that's probably higher in terms of revenue share -- could look like child's play compared with what's in store for 2010.

Turning to the courts
It's against this backdrop that Nokia's October 22nd patent lawsuit against Apple -- moves which Apple just returned in kind -- seems perfectly logical. Considering that Nokia has signed plenty of patent cross-licensing deals over the years with rival phone manufacturers, and that Apple apparently has no problem paying royalties to Qualcomm (Nasdaq: QCOM  ) and Interdigital for their 3G patents, you'd figure that these two adversaries would work something out. But with Nokia desperate to do anything it can to slow down the iPhone's momentum, maybe it decided that the courtroom is a good option.

Of course, if Nokia was truly serious about slowing down Apple, the company wouldn't turn to the courts, but to a serious overhaul of its business strategy. It would follow Google's lead and try to quickly bring to market a variety of new Maemo devices, and it might also make a play for Palm, whose WebOS operating system would arguably gives its hardware a better chance of standing out. But Nokia has historically preferred to take a gradual approach to major platform changes, and it's long been wary of North American companies hawking proprietary wireless platforms -- just take a look at the company's historical battles with Qualcomm and Microsoft to see what I mean.

Hence the lawsuits, and hence a smartphone strategy that looks like it's based more on hopes and dreams than on market realities.

Fool contributor Eric Jhonsa has no position in any of the companies mentioned. Microsoft and Nokia are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Apple and InterDigital are Motley Fool Stock Advisor selections. Microsoft is a Motley Fool Options diagonal call recommendation. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool is investors writing for investors.


Read/Post Comments (8) | Recommend This Article (7)

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 January 19, 2010, at 4:54 PM, Johax wrote:

    The market reality is that Nokia is selling smartphones more than appl and rimm together. And Nokias market share is growing in Europe and Asia all the time.

  • Report this Comment On January 19, 2010, at 5:05 PM, cheatsheet wrote:

    The reality of finances indicates that the market share increase is not as important as revenue and actual profits. Look at Nokia Net profit in 2008 compared to 2009. 2009 is roughly earning Nokia 50% of the profit from 2008. This market is Nokia's to lose unless they execute on all levels for what the smart phone market has become - portable computers for average consumers. And the trick is to convince the consumers to want to use theirs.

  • Report this Comment On January 19, 2010, at 5:48 PM, Johax wrote:

    Btw did you know that appl has serious problems also in China. The factory is using toxic chemicals when cleaning screens for the IPhone. WOW this fruit must be rotten inside too.

  • Report this Comment On January 19, 2010, at 6:02 PM, Inept wrote:

    Just for reference, I thought I would point out that the N97 was released mid 2009. The 5800 was released in November 2008. Neither of these was Nokia's first touchscreen device, though. That'd probably be the 7710, which was based on the now defunct S90 user interface and was a spectacular failure. It was ahead of its time for 2004 - it just couldn't deliver what consumers would have liked because the technology wasn't really in place. There were also numerous Maemo-powered MIDs that Nokia released in years starting at 2005, but those were never really phones per se.

    I would also point out that last quarter's declines in market share probably had as much to do with the fact that several major device refreshes were pending release and numerous new devices were being launched as they did with competition. In other words, some customers might have potentially been waiting for new Nokia gear to be launched.

    As for the lawsuits being a reactionary response to declining market share or an inability to compete, I think that's wishful thinking. More likely it's a response to having intellectual property and patents potentially infringed upon.

  • Report this Comment On January 19, 2010, at 6:22 PM, demodave wrote:

    Jihad, that's not an Apple plant in China. That's a supplier to Apple. Although it could still be damaging to Apple's reputation, it's not the same thing.

  • Report this Comment On January 19, 2010, at 6:34 PM, haydn1701 wrote:

    Nokia reacted much more imaginatively than you suggest. Someyears before the smartphone wars brought Apple and Android into life in mobile, Nokia planned the open sourcing of the Symbian OS. This is akin to Microsoft open sourcing Windows. It is an incredibly brave move and one that has gone largely unrecognised by the press who would normally crave such a move from a behemoth like MSFT. We should be applauding Nokia and what it is doing for mobile.

  • Report this Comment On January 20, 2010, at 2:30 PM, lessthebest wrote:

    "And it wasn't until last year that it realized that just maybe Symbian wasn't cutting ..."

    Are you serious? Do you know anything about developing technology.

    It's not that guys at Nokia are sitting and just waiting for idea and then finally last year they decided to develope Maemo and N900 ... Come on ...

    I can remember that in 2008 they started to hire lot of Maemo and Linux experts here in Finland.

    It indicated that bigger gear was in and then N900 came in 2009.

  • Report this Comment On January 20, 2010, at 5:33 PM, Johax wrote:

    Poor Nokia has only 66 % market share in India. Nokia´s market share has rised only 4-5 % last months in Russia. According to Carphone Warehouse, the largest mobile phone retailer in Europe, Nokia N900 has proved more popular than other handsets. This company is really getting desperate.

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