Looking back at Mobile World Congress 2013 in February, one of the remarkable things about an otherwise fairly unremarkable Mobile World Congress, was the absence of non-smart phones. Nokia was the only manufacturer that was loud and proud about its feature phone line-up. The borderline between smartphones and feature phones is at stake now. The exhibition was awash with Android devices. Nokia was more or less the only company showing Windows Phone 8 devices and its feature phone line-up. Alcatel OneTouch (TCT) was displaying a number of feature phone products, but under glass.
We fully expect Android devices to crash through the $100 wholesale price level and will likely end up substantially below $100 by year end 2013.
In 2009/10 Nokia suffered a severe loss of market share in its traditional strongholds including markets like India. The cause was Nokia’s inability to make devices that included critical features – especially dual SIM capability.
Series 40 required major surgery to allow it run with dual SIM cards – this took time and cost Nokia over 20 points of market share in India alone. While Samsung was a beneficiary in market share terms the greatest damage was done by white label Chinese device manufacturers that were able to churn out aggressively priced handsets that had all the features consumers wanted. Nokia fought back with dual SIM devices, a powerful, if somewhat bruised brand, high build quality, first-class supply chain management and unrivalled distribution power.
In 2013 Nokia will again face barbarians at the gate. This time however the competitive differentiator is not dual SIM but Android OS.
Despite the likely poor user experience, we expect Android devices from Chinese branded and white label manufactures to take a significant share of the price band in 2013. As a result, we expect Nokia to be pushed back, losing market share in the $50-$150 price band. It should however be able to consolidate its position in the ULCH market with the 105. But with pricing more like FMCG than CE, the 105 will contribute little significant revenue and profit despite our expectation that it will sell in millions of units each quarter.
As we expected, the Q1 2013 Nokia results are showing the difficulty it is experiencing. Low cost Android is going to be a Global Phenomenon this year.
