Future of Nokia: Things will get much worse before (if ever) they get better

Is this beginning of the end for Nokia?

Now that Finnish company announced the sales in two of it’s most important markets – Europe and China – have stalled, and Nokia has no idea what it will be able to sell until the end of this year, it certainly seems so. At the very least, things will get much worse for Nokia before they get better. If they ever will. Nokia is now in a free fall, and whether they will be able to survive this one as an independent company, is anyone’s guess.

The main problem for Nokia today is that people stopped buying their current products and, until Windows Phones are ready,  they have nothing in the pipeline to renew the consumer interest.

As a matter fact, Nokia didn’t have anything interesting and competitive in the market for about two years now. The only smartphones that allowed Nokia to keep their market share through late 2009 early 2010 were the ever cheaper clones of 5800XM and N97. And even those stopped working in the beginning of 2010. To keep the eroding demand and market share, in the first half of 2010 Nokia started dumping the prices for their smartphones, sacrificing margins and profitability. And hoping that the new Symbian^3 OS will be good enough to revive things and get Nokia back on top.

When Nokia board put a stop to the price cutting tricks last summer, the slide started. First there was a blip of disappointment and market share losses in Q3 2010. In October the new Symbian^3 handsets arrived and , with the help of loyal fans who have been waiting for the new high end Nokia handset for months, boosted Nokia fortunes a little. But outside of Nokia loyalist circles, Symbian^3 boost proved to be too small to matter. Nokia ended up losing 25% of it’s market share in the second half of 2010.

In the beginning of 2011 things became worse. Most of the fans and early adopters who wanted the new Symbian^3 handset already got one, very few others were interested. Then came February 11th, and the change of strategy announcement. Elop’s message that Nokia is moving on to Windows Phone, and from now own Symbian is dead, was received by the man at the point of sale in every mobile shop. Later spin and damage control to keep Symbian alive a bit longer didn’t help much. People already were more interested in the new shiny Androids and Bada phones. The change of Nokia strategy was another reason for mobile salesperson to steer customer towards competitors.

With real sales cratering in Q1 2010, in addition to price dumping, Nokia turned to channel stuffing as well. In January-March of this year, the best market for Nokia was China, where it was able to show 9% growth from Q4 2010. Turns out these numbers were bogus and, as Stephen Elop admitted yesterday, resulted from “inventory mismanagement”. I.e. shipping as many phones as possible out of Nokia warehouses to it’s retail and wholesale distributors, on credit, without timely payment guaranties, etc. Just for the sake of recording the unit as sold by Nokia in Q1. As Eldar Murtazin reports in his blog– similar things were happening in March in Russia and India.

It worked for a while to boost Nokia Q1 numbers, but now it’s over. All Nokia retail channels are filled with millions of unsold Nokia phones and Nokia partners just won’t buy any more of them. With consumer interest in Nokia Symbian devices falling rapidly, sales persons at the counter not interested in pushing Nokia phones, partners can not sell what they already have, let alone order additional phones.

No sales visibility for the rest of the year means, that neither Nokia nor it’s partners have any idea when they will be able to sell things already in the stores and warehouses. Yesterday Nokia promised 3 actions that might help revive Symbian sales:

• Slashing prices even more. Someone should be interested in some Nokia phones at some price. The question is how low Nokia will have to go and how much money they will lose in the process. And what do they do if Samsung, HTC and others join in a price war and start offering competing Android devices at similar price points, while maintaining their margins with high end devices were Nokia can’t compete?
• Demand generation at a point of sales. Which means cash and other incentives to the salespersons in the shop to push Nokia devices. In a conference call yesterday Nokia management said they have big plans to boost PoS incentives. But again, it might help some, it will cost a lot, competitors ain’t sleeping, and will be able to match Nokia in most markets they care about.
• The boost from Symbian Anna and new Symbian phones. Maybe Anna will help. But, if the huge improvement over Symbian^1/S60 that Symbian^3 was, didn’t help Nokia much since October 2010, why would a largely cosmetic improvements in Anna be any different? And there are no new Symbian phones with improved specs coming from Nokia until this fall. Probably until about the same time that first Windows Phones show up.

To sum it up – for the next 5-7 months Nokia has no interesting products to boost demand, the sales channels for current offerings are filled with unsold inventory and competitors are ready to respond. The things Nokia promised yesterday might help some, but not much.

Which means that there are much more bad news about falling Nokia smartphones sales, declining margins and monetary loses to come in the next few months.

The only silver lining in yesterday’s announcement was the news that Nokia is now very confident that they will be able to ship the first Windows Phone devices this year, and that there is a big operator and distributor interest for Nokia Windows Phones.

Let’s hope they are right about that, and that new Nokia Windows Phones will be enough pull the Nokia out of this free fall. Otherwise there might be no Nokia to talk about by 2013.

Picture from: Fotki.yandex,ru via @eldarmurtazin)

If you liked the post, you might find these interesting too:

• Nokia posts Q1 2010 results. And no, Symbian^3 and Symbian^4 are not delayed
• Why did Nokia Symbian smartphone sales crash this year? Infographic
• Symbian is dead. For real this time. Nokia is now an upstart in smartphones, with 1% market share
• Windows Phone now outsells Symbian in the UK, Nokia Lumia 800 helped a lot
• Nokia stops smartphone sales drop in Q3, but it’s now No.3 behind Samsung and Apple

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