Moore's Law will Kill Feature Phones:
It is naive to think Nokia will rule the feature phones segment. An effect like Moors law that we see in semiconductor industry will bring down prices of mobile Dualcore, Quadcore processors and RAM. This scenario will cost Nokia dearly. What ever low price segment it has now will be threatened by cheap android phones armed with better hardware and app ecosystem. One can pickup an Android phone from a decent Brand for 40 to 50 bucks - Off Contract- in most of the developing world. Why on earth I should choose Asha phone? Moors law effect on Android phones will confine Asha to couple of million a year by end of 2015.
Look at the market this way- Cellphones are there at every price level From $50 to $1000 since late 1990's. Imagine $100,$200,$300 ...$1000as price shelves and Nokia is filling it with different models of that time. Today Lumia 920 is on $500 shelf and in 10 years it's hardware will be moved down to $20 shelf.
About 10 years ago it filled those shelves with feature phones (where it owned OS and other technologies) so there were greater margins but now it is filling those shelves with Smartphones with borrowed OS. There won't be feature phones in 2 to 3 years all phones are equipped with Smartphone features and Android OS. HTC,LG,Sony, ZTE will all have phones in every price point due to moors law effect on Mobile hardware. Those small brick feature phones will remain a smaller market.
Nokia staple feature phone segment is already under threat, look at the Q1 results. In next couple of years it's all done and dusted.
( By the way this price shelve phenomenon exist in Cars to Laptops,it's undeniable fact.)
Speed triumphs Ultra Durability:
Nokia makes these ultra durable phones, every time I upgraded my phone I donated the old phone. My mobile phone hardware out dates every 2 years so I need to replace it. To build quality phone it takes time to build and test it. Which inevitably delays the speed of launch. Phablet,41 MP camera delayed, Tablet is delayed. At this point in time delay is what is killing Nokia. Nokia should strike a right balance on quick launches and durability.
Samsung noticed Asha success and within few months it launched REX model and instantly countered it. Nokia saw Samsung Note Phablet,what did it do? It contemplated for a year and made an announcement today. Nokia Launched 41 MP camera (808 on Symbian) an year ago with Pureview when most competitors were at 5 MP cameras-Now they are launching 15MP camera phones. By the time Nokia will launch 41MPon Windows OS in June competition will close the gap a bit more.
HERE is not a cash engine:
Here Platform will never be the revenue generating engine (other than GPS units sales) It's a strategic asset for Microsoft but not for Nokia. These days OS war is spanning from Desktop to Mobiles. Mapping service that rivals Google maps is a big asset to MSFT, not so much for Nokia. Google maps is tightly integrated to Search and Google cars, Google glasses I wonder what benefit is there like that for Nokia. I don't think Google maps division alone is profitable but it's key strategic asset for Google's future. The next wave of technology (internet of things & location aware cars, watches etc) needs mapping services but I seriously doubt Nokia has enough dough left to venture in to those fields. Share the cost of maintaining it with MSFT or sell and lease the services. Nokia is subsidizing a tool that's needed most for MSFT.
To compete with Google maps Nokia need to maintain Street view, large number of staff and HERE web platform. All of this effort benefit greatly with MSFT not much with Nokia. Nokia Lens is the only creative app I have seen so far, but that's not a deal breaker. All Nokia exclusive HERE apps are now opened up to other windowsphone makers, who will benefit most now?
Android Phone is not a bad Idea
Nokia can still release a high end Android phone with completely different design/Brand and compete head on with Samsung with a different brand name. Look at S4 it's peace of plastic crap without any soul in it. At least Nokia can sell 3 million high end smartphones with decent margins on Android. This margin alone can beat the Platform subsidy from MSFT.
Exclusive should end:
Imagine whole market as big pie, where Nokia decided to restrict to small corner (to differentiate it self via windowsPhone). Then it further restricted it's appeal to wider market by carrier exclusive deals. Lot of Americans moan about AT&T exclusive. One commentator just mentioned that he couldn't get a single Nokia phone on Sprint network,Sprint has 50 million subscribers- Nokia is shooting on it's foot.
If Nokia could increase the volume in the developed world where people spend money on apps- it effects app developers mindset on windows OS- Only way to do it is to spread the availability wider.
Leader of Ecosystem is not the right guy to lead:
I respect Elop, my criticism is against Steve Ballmer. He is the one who is leading the ecosystem war. Unless Microsoft comes up with tight integration with Desktop,Tablet, Windowphone OS there is no competitive advantage for Nokia picking the windows phone OS. Under his watch MSFT chased Google with Bing, Adobe Flash with Silverlight, ipods with zune……I can give you countless examples. When will you invent if you keep chasing? Now Google is building Android Laptops and bringing OS war to MSFT home turf desktop. Nokia got sucked in to this equation.
As a Nokia Investor I am loathed to see Nokia being used as a proxy to short sell windowsPhone OS. I have a harsh opinion on Steve Ballmer(a sales guy) who don't have the technical brain and driving the bulldozer.
Illusion of Developing countries:
By the way I live in 2nd world and my dad lives in third world country. My Dad changes his phone once in 5 or 6 years unlike my friends in western world who changes their phones once every 2 years. It's an illusion that emerging markets offer hope for Nokia. Users in emerging markets also treat ZTE, Huawei, LG, MicroMax, Karbonn as decent brands unlike their counterparts in western world.
Nokia is the only largest leading cellphone manufacturer which is based in Western world- That gives a competitive advantage designing phones that matches the tastes of the consumers in those wells pending markets. LG,HTC,Samsung, Huawei - they can compete on hardware specs but they can't build an iPhone(who knows time can change everything). Android (as a OS brain) actually gave all these a big break in western world.
Threat of Midgets:
HTC came up with HTC one whose camera now beating L920-In fact this one is the best Smartphone in the market. LG came up with Nexus4 which is a blockbuster. Sony now got a decent phone. All of these companies are now building strengths on Android. Forget about Samsung, it's these players that are now saturating the market. A whole new generation of kids got used to these brands and Nokia-which I grew up with- is now unknown to them.
If Nokia wants to be in cell phone making business it should stop limiting it's boundaries by carrier exclusive deals and windows only restriction. Speed and agility is what Nokia needs to demonstrate to the market.
Disclosure: I am long NOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.