Under tremendous pressure, and facing calls for his resignation, Nokia CEO Olli-Pekka Kallasvuo is betting big on the N8 handset and Symbian 3 to help the company recover marketshare, and have something significant to show in the highly competitive smartphone market currently dominated by Apple’s iPhone, and the spread of Android. Saying that it is clear that the current situation is very tough at the high end of the market, Kallasvuo warned investors that things won’t be easier in Q3. However, he offered hope, saying that the N8,the first Symbian 3 device, will begin shipping towards the end of Q3. Nokia is planning a broad launch, though the more meaningful launches are expected in Q4.
Optimistically, Kallasvuo said that the “N8 will mark the beginning of the renewal” and it will “have a user experience superior to any smartphone Nokia has produced.” Of course, saying that the user experience will be superior to any other Nokia phone isn’t saying much. All of this sounds like the build-up before the N97 launch.
Remember that Nokia also has a partnership with Intel for another platform – the Meego. Kallasvuo took the opportunity to, in his own words, “set the record straight on 4 key points”:
1. There will be a family of Symbian 3 devices, of which over 50 million will be shipped, “conservatively”. The family of Symbian 3 products will be available in Q4 this year.
2. “We have made a lot of changes about how we approach development in the last 24 months. With Symbian 3, we are leveraging a software centric platform approach, which provides distinct benefits for internal and external developers. For Internal development teams, we can strive to deliver more steady platform. This is because the Symbian 3 software will be uniform across devices, which will make application development more scalable and much easier for developers across Symbian 3 devices.
3. The distinct differences between Meego and Symbian 3: Symbian is about leveraging scale, expanding and democratizing the smartphone category. Meego is about leveraging speed to industry leading flagship services (targeting the higher end of the market). Olli-Pekka suggested that the Meego will be at the highest end of mobile computing, beyond current smartphones.
4. “It takes more than a good product to succeed: customer loyalty, distribution channel and the strategic alignment with operators. We excel in each of these areas. Improving our smartphone competitiveness allows us to leverage these assets.” Our take on this point is that these strengths can only be leveraged if the product itself is good.
Nokia says it benefited from strong sales from Nokia 2690, their lowest priced device with removable a memory card. This enabled the company to end Q2 with higher marketshare in India than at the start of the quarter, Nokia claimed. Kallasvuo, during the Q&A said that “in India in Q1, we had a tremendous setback from Chinese competitors, we lost some ground. With a better portfolio with the 2690, we improved our performance once again, and claimed back marketshare in Q2.” Nokia will start shipping its Nokia C1 dual SIM phone in Q3, which it expects will help improve performance in developing markets, “especially in India, where Dial SIM is particularly popular.”
On being asked about the US market, Kallasvuo reminded investors that the US market is not similar to any other: “The operator testing is far more than anywhere else, also time-wise. You need a situation where you are quick to the market to have that benefit. We have been trying many times, but has been a painful experience. Symbian’s earlier generations have not been fast enough from a time to market perspective, we’ve missed some time windows. The Symbian 3 and the massive rewriting of the code base – it is a massive 24 months rewriting of the code, the biggest software project of Nokia in its history. We will need Meego in the US. The Meego team has been instructed and ordered to give priority to the US market. If you are competitive enough in the US, you can be competitive elsewhere as well. It’s not always the case the other way around. It’s been heavy lifting with Symbian 3, with the rewriting of the code base.”
In Q2 active service users moved from 77 million to 140 million, just shy of the 150 million target. Volumes were up 3% sequentially, and 8% year on year. Nokia said that there was cross border trading related to currency volatility, from Europe to dollar denominated regions like Middle East and Africa in order to arbitrage the depreciation of the Europe. The company ended Q2 with channel inventories of 46 weeks.
Nokia’s Average Selling Price including sevices was EUR 61, down EUR 1 sequentially, due to price pressure in the high end smart phones, offset by appreciation of certain currencies against EURO, and converged mobile devices representing a greater percentage of overall device volumes. The Converged mobile device ASP was EUR 143, compared to EUR 155 in Q1, mainly due to mixed shift towards lower priced smart phones, as well as price pressure particularly in certain high end smart phones. Devices and services gross margins in Q2 were 30.2%, down 220 basis points sequentially.