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.
Eric Bleeker, CFA, has no position in any stocks mentioned. The Motley Fool recommends Apple, Google, and Intel and owns shares of Apple, Google, Intel, 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.