If Windows Phone continues to fail, Nokia has no Plan B

Windows Phone! It’s fun! It’s young! It’s got apps!
Windows Phone! It’s fun! It’s young! It’s got apps!
Image: AP/Ng Han Guan
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The world’s second-largest mobile phone maker by volume is in danger of crashing so hard that the company is sold for scrap to competitors or partners, who are rumored to include Lenovo, Huawei and Microsoft. It’s looking increasingly unlikely that Nokia can avoid such a fate, as two of its four primary lines of business are under threat. Here’s the breakdown:

1. Nokia has become the number one vendor of smartphones running Windows Phone, but overall the experiment with Microsoft appears to be failing. Market share for Windows Phone 8, which is the version that runs on Nokia’s handsets, remains lower than Windows Phone 7, a completely different (and arguably much weaker) OS. The CEO of Huawei has publicly called Windows Phone “weak.”

2. Nokia’s pseudo-smartphones for the developing world (like the Asha phone in India) are losing to cheap Android competitors. Market share for Nokia’s Symbian OS, which powers its low-end “smartphones,” was 17.4% to Android’s 56.4% in India just six months ago, and since then Android has captured almost all new smartphone sales in India.

3. Nokia is still selling tons of feature phones (i.e. not smartphones) but the margins on those are slim. A decade of refinement means that Nokia can sell a phone for $20, but Nokia is making a $5 margin or less on each.

4. The just-announced acquisition of Siemens’ half of Nokia Siemens Network (NSN), a vendor of enterprise equipment for telecom companies, is the one (potential) bright spot for Nokia. The substantial price for NSN, $2.2 billion, reflects the health of the underlying business.

Nokia’s options are straightforward: Sell off its smartphone and/or feature phone business and become an enterprise company, or… give up? Unless consumers miraculously become infatuated with Windows Phone, Nokia’s strategy of getting people in emerging markets to buy cheap Nokia handsets and then upgrade, progressively, until they’re on a Windows smartphone, just doesn’t make any sense, mostly because all of Nokia’s platforms, from the cheapest to the most expensive, are running entirely different operating systems. There’s almost no continuity between them, other than the Nokia brand. In other words, there is no Plan B.