Nokia Fails in Search for Smart Smartphone

The dissembling continues at Nokia (NASDAQ: NOK).

After getting rid of its Symbian mobile operating system last month, the company Monday slashed 4,000 jobs and transferred 3,000 developers in the group to Accenture as part of a “strategic collaboration.” The move is in line with the world largest handset maker’s decision to move to a Windows Phone 7-based operating system on its phones.

Nokia’s stock price has shed more than 70% in the last three years, and is in a trading range of $8 – $9. Average revenue growth, which was an astounding 47% through much of the 90s, dwindled to 9% in the latest quarter.

News is bad on the business front, as well.

The company has lost market share in the smartphone category since 2007, and is now down to 26%.

Bottom line, the company lacks a business strategy. Nokia’s shift to a new operating system is aimed at reviving its mobile handset business, a category that supplies 70% of its revenues and almost all of its profits.

Nokia develops smartphones for 1) relatively sophisticated customers in developed markets who prefer a plethora of applications and features and for 2) entry-level customers who prefer cheap and inexpensive phones.

However, both sets of customers are migrating to smartphones that run Android and iOS systems, developed by Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) respectively.

Such phones are popular because they contain applications written by communities of developers. The custom-developed applications engage users, developers and, in Apple’s case, also earn revenue for the company.

Nokia hopes to counter the Android and iOS craze with its Microsoft tie-up. However, the company faces a double whammy on that front: the Windows Phone 7 has had lukewarm sales since its launch in October last year. Similarly, a recent survey among developers revealed that they aren’t exactly crazy about developing applications on the platform. App migrations, which make it easier for application developers to work across mobile platforms, aren’t happening either.

It wouldn’t be so bad if Nokia could rely on its other cash cow: revenue from emerging markets. But the company seems to be caught between a rock and hard place and local players provide tough competition. A year after launch, local handset makers accounted for 17.5% of all sales in India, Nokia’s second largest market after China. That number grew this year even as the company’s market share declined precipitously.

Unless Nokia can come up with a coherent winning strategy, the recent layoffs might just be beginning of the end for the handset company.

Article printed from InvestorPlace Media,

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