Nokia’s (NYSE:NOK) shares have come under pressure this week after a leaked Strategy Analytics report showed that the company has fallen from the top to the seventh place in the key smartphone market of China. While the leaked report does not contain any charts or tables to support the claims, it seems Nokia’s smartphone market share in the country has collapsed from about 30% in 2011 to less than 4% in 2012.
Samsung, which started selling mobile devices in China only in 2009, gained the most from Nokia’s slump last year, selling three times as many smartphones as it did in 2011, to move to the top of the market with about 18% market share. With most of the value in Nokia’s mobile phone business coming from emerging markets (almost 60% by our estimates), the company’s lackluster performance in China seems to have made the market rather nervous.
Symbian Sales Decline, The Culprit
However, we believe that most of Nokia’s market share loss in China has happened on account of an expected decline in sales of Symbian smartphones, which the company has been phasing out in favor of Windows Phones. The transition to Windows Phone has been tough, and for the most part of last year the company saw Symbian sales drop and Windows Phones fail to pick up the slack. Nokia’s overall smartphone sales for the full year 2012, were down by more than a half from 2011. Interestingly, however, the trend seems to be reversing with the launch of Windows Phone 8 and new Lumia models, the 920 and 820, last quarter. Strong holiday demand for the initial release of Lumia smartphones saw Nokia’s sales of Windows Phones finally outstrip Symbian’s by 2:1 in Q4 2012. It remains to be seen if adoption of the new Lumia models will help Nokia reclaim its old standing in the Chinese market, but the company has been moving strongly in this direction.
The Finnish handset maker recently launched new mid-to-low-end Lumias, the 720, 620 and 520, in a bid to expand Windows Phone 8’s reach to cheaper price points and address the slump in the emerging market sales. While the Lumia 720 and 620 are mid-range smartphones, the Lumia 520 is priced at less than $200 and positions Nokia well against the onslaught of cheap low-end Android smartphones in emerging economies. (see Nokia Looks To Stem Market Share Decline With More Affordable Lumias, 620 And 520)
Low-end Windows Phones And Carrier Partnerships Key
Nokia is also garnering support from the Chinese carriers for the latest Lumias. The Lumia 920 was launched in China on both China Mobile and China Unicom at the end of last year, and reports claimed that overwhelming demand had led to stock sell-outs within hours. Nokia has said that it will launch the cheaper 720 and 520 on China Mobile as well, further strengthening its relationship with the world’s largest wireless carrier. The fact that Nokia is launching its low- to mid-range Windows Phones before Samsung or LG do the same, and before BlackBerry gets to launch its mid-range BB10 handsets later this year, should also give it a significant head start over rivals in the emerging markets.
At the same time, Nokia will look to defend the very low-end sub-$100 price points in the emerging markets with S40-based Asha handsets. These quasi-smartphones have feature sets that resemble smartphones, and are wildly popular in China, India and other emerging markets. Demand for the fully-touch Asha phones, which were launched in the later half of 2012, has been strong with the company seeing Q3 and Q4 combined sales of almost 16 million units and a q-o-q growth of about 43% last quarter.
Eventually however, Nokia will look to push Windows Phone down the value chain to the very low-end and compete with Android on an even keel. Emerging markets accounted for more than 67% of Nokia’s handset revenues last year, and with the market for basic feature phones shrinking, Nokia will be looking to arrest the market share slide with the newly released Lumias, 620 and 520. Although Android has taken an early lead in the Chinese market, 3G penetration in the country is still only about 20%, and there seems to be ample scope for Nokia to leverage its carrier partnerships to grow its smartphone market share in the country. How well users adopt the low-end Lumias in the emerging markets will be a keenly followed metric in 2013.