When the Financial Times reported that the world’s number three manufacturer of smartphones, China’s Huawei, might consider acquiring Nokia, that icon of the mobile phone revolution that has fallen on hard times, it was a bit of a head-scratcher. Why would a company making Android smartphones want to acquire the wreckage of the business it’s disrupting? It would be like Henry Ford using proceeds from the Model T to buy a buggy whip company.
But there are two things about Nokia that could make the company attractive to a stronger rival.
The first is that smartphones only make up half the mobile phones sold in the world today—49.3% of the 426 million sold in the first quarter, to be precise. That percentage is steadily increasing, but it will probably take years, even decades, for all smartphones to completely take over. The reason is simple: Even as the price of smart phones continues to fall, feature phones are getting cheaper too, and will get to nearly zero a lot faster. Already, feature phones are selling for as little as $10, and in places like India, mobile data plans are as low as $2 a month.
Feature phones are the one area where Nokia remains dominant. While Nokia is only the number ten seller of smartphones worldwide, the company is the number two seller of phones overall, moving 63 million handsets in the first quarter of 2013, compared to Samsung’s 100 million and Apple’s 38 million.
The second thing that makes Nokia an attractive acquisition target is its hard-won ability to localize its phones for various markets. Nokia remains popular in India, for example, because of the library of India-only content and apps the company has fostered on its Asha “smartphones,” which are really more like feature phones tricked out to operate like smartphones. There’s still a great deal of market share to be gained by taking this localization even further.
So what would a hybrid Huawei / Nokia look like? One possibility is a world in which Huawei keeps Nokia’s existing feature phone business intact, and uses its engineers and embedded expertise to bring more of what makes Nokia’s feature phones so compelling—reliability, localization, low price—to Huawei’s Android smartphones. There could also be opportunities to give consumers a more gentle transition from feature phones to smartphones, for example by encouraging developers of custom content and apps for Nokia’s Asha phones to modify or rebuild that content so that it can run on low-end Android devices.
However it comes to pass, at some point Nokia will shrink enough to become a target that can be acquired by one of its larger competitors. That an executive from Huawei was the first to say that out loud just shows how forward-thinking the company can be.