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.
