A New Dawn or the beginning of The End for Nokia?

This week we have seen the presentation of results for Nokia and Apple which in headline terms present a change in the fortunes of the leader and a significant challenge at the high end of the market.

In his presentation  Ollli-Pekka Kallasvuo Chief Executive of Nokia said  “In recent weeks the macroeconomic environment has deteriorated rapidly, with even weaker consumer confidence, unprecedented currency volatility and credit tightness continuing to impact the mobile communications industry. ” 

Apples results show that it sold 13.7m devices in 2008 which is about 1-1.5% of the total worldwide market by volume.  The last quarter saw only 4.4m sold rather than the 5m the market estimated. The key comment made in the Earning Call was that the iPhone performs poorly in non-subsidised markets, indicates that at some point when demand evens out carriers will have more power over the price they pay Apple for the handset. 

With 40% of the handset market and the Integrated model rather than contract manufacturing Nokia has better Economies of scale than its rivals.  Apple is a design house that gets its handset made by Hon Hi as a contract manufacturer.  When you are making Phones in small volumes doing so in someone-else's factory makes sense however is it something that works when you have more than one design and 10% of the market?

Whilst some see the entry of Apple and Google into the handset market as the opening of the ecosystem thanks to the application platforms that they present I have to ask if the economics work?  The Network Operators have made investments in infrastructure, distribution and support over the last 20 years.  Why would they not expect some return on that investment and security over the future customer revenues?

Looking at the history of Mobile I recall that Nokia assumed that with the arrival of Data services in the late 1990's it presented a chance to take control of the consumer with the launch of Club Nokia as the primary Wap bookmark.  The result was a boycott by the networks until they localised devices for each Operator.

Talking to those who work in FMCG I am told that advertising is not about getting someone to switch from Coke to Pepsi but rather to get them to increase the volumes they consume.  The same is true with Handsets most people say that they are a Nokia user, Sony Ericsson person, Blackberry Addict rather than Orange customer, Vodafone Fan, O2 Punter.  This Brand loyalty makes it difficult for new entrants to capture market share the rise of Blackberry and HTC has taken 10 years to achieve.

The presentations at Barcelona next month will be interesting in that we in Europe will get to see the new Palm Pre and perhaps the first Android based handsets from Motorola as well as new handsets from all those in the mainstream.  I hope that we will get to see the first devices that use the Snap Dragon chip which could offer features better than the current smartphones with hopefully better battery life. 

Nokia will innovate devices in the economic downturn.  The conditions hopefully will mean that they cut a number of handsets from the product range in an effort to improve the user experience and quality of the offering.  In light of the downturn will Motorola, Samsung and Sony Ericsson be able to do the same? If they fail to then they will be the ones who lose out to the New Entrants.  Before I see Apple as anything other than an opportunist they will need to offer a range of handsets similar to their iPod or Laptops.