Android has taken another bite out of Nokia. Google's operating system for mobile handsets is making life painful for the Finnish firm, which was already under a sustained assault from Apple's iPhone. Cheap Android-based handsets are even invading Nokia's former havens in emerging markets. The result was a profit warning on April 11. Nokia's promised turnaround now looks less likely, and further away if it comes.
While global smartphone sales are soaring, Nokia only sold 12 million in the first quarter – half as many as a year ago. The decline won't stop soon. Nokia has pinned its hopes on using Microsoft's Windows Phone operating system to power its smartphones at the higher end of the market. But there are many more apps available for Android devices and iPhones. So, Nokia is having to compete even more aggressively on price to attract custom.
Now there's a new worry. About half of Nokia's handset sales come from cheap and mid-price feature phones. The company's scale and manufacturing prowess meant this had sustained a decent financial performance. Unfortunately, this market is now maturing. So Android phones are now pressuring Nokia's sales in India, the Middle East, Africa and China.
A new Microsoft operating system for mobiles should be out around October. The hope will be that phones and tablets running this will have a better shot at beating rivals. But many potential customers will now wait and defer purchase, especially given recent glitches with Nokia's existing smartphones. No wonder Nokia thinks the second quarter's operating margin for its handset business will be as bad as this quarter's negative 3 per cent or worse. While analysts had thought the company would eke out a small profit this year, losses over the next two quarters mean it will probably finish 2012 in the red.
Meanwhile, the market position of Android and iPhones will become further entrenched. These rivals won't sit still either. Apple could unveil a new iPhone as soon as the late summer.
It is now clear that Steve Elop, Nokia's newish chief executive, took a colossal gamble in pinning the firm's future to the Windows operating system. He doesn't have time on his side. Strong take-up of the new Windows devices slated for later in the year is probably the only thing that can give him a reprieve.