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Spillikins #125. Nokia Week: Leaks from Elop
Courtesy of frantic Nokia activities all main events of the week were associated with the Finnish manufacturer. Who else can unveil the first and last MeeGo phone, which had to be released under the contract with Intel and mastermind an official leak of other products? It was crowned by the video of the company's leader claiming that the information is strictly confidential. Against this background analysts from Nomura Research informed us that for the first time in 15 years Nokia will lose its leadership in the smartphones segment this quarter. It will be overtaken by Apple and Samsung. This piece of news is far from optimistic, but everything looks rosy in comparison with the way top management of Nokia is destroying the company on a daily basis. Due to Nokia prevalence in the news this issue of the Spillikins turned out to be longer than usually. I am sorry for being not concise enough. I had no choice though. Enjoy your week.
This week was packed with Nokia related news and events. The majority paid attention to the release of Nokia N9, which is the first and incidentally the last MeeGo smartphone. Positive reviews filled hundreds of websites, which resembled the situation of 2009, when Nokia N900 was launched. At the time Olli-Pekka Kallasvou (Nokia CEO) claimed that the gadget had the best browser ever. Real life happened to be more sobering and sales of Nokia N900 were obscenely low. According to Reuters Nokia managed to sell no more than 100,000 handsets, which was a disaster for the market leader. Afterwards the company tried to refute the information and carried out the research claiming numerous pictures on websites taken with N900, which allegedly proved the popularity of the product. Nokia never disagreed with Reuters figures directly. Moreover, not a single reputable research company indicated Maemo (represented only by N900) in sales results, because they did not see the device on the market. It was a complete failure and disgrace for Nokia.
In the summer of 2009 ordinary users and the press labeled the device as the best Nokia product, beating Nokia N97 in all respects. Revisiting old articles and reviews I felt that time is not an ideal teacher for some people. N9 receives the same epithets and many people say they are ready to buy the device. Some will do it deliberately after reading my article in order to prove me wrong.
I doubt that Nokia N9 will enjoy impressive sales. Nokia did everything to avoid it. The price is set at around И500. 92,000 handsets were produced (N950 for developers was released even in lower numbers). The funny stuff begins now. Nokia N9 is ready to hit the shelves as both hardware and software are in place, but Nokia moved the release date back until the end of the third quarter (end of September) for a number of limited markets. Main street retailers will get hold of the model only at the end of 2011 with some limitations. Carriers and retailers do not feel like buying the model and see no potential here. Nokia itself declared the phone to be only the demonstration of capabilities and available technologies. Those who invested in N900 two years ago do not want to repeat the mistake and will be reluctant to buy N9.
Nokia could have sold it through its online stores, but the company started closing them down in Europe. After Spain, France and Holland comes the turn for the UK. The dependence from the partners is maximum for Nokia. They have to decide whether to prioritize new WP7 models or sell the latest Meego phone. Nokia has made its choice and the sales of Nokia N9 will be limited to several markets, for example, Russia. It is the key area for Nokia N9 and the company will try and make partners buy a considerable number of N9. Partners are still reluctant though.
Nokia does not believe in N9 and its CEO Stephen Elop said in his interview to Helsingin Sanomat that irrespective of N9 success it will be the last Meego product. It is very logical for Mr. Elop.
‘ото с сайта http://talk.maemo.org
In Spillikins No 115 I mentioned the following about Nokia plans: "The main emphasis will be on WP7, but models on Android will be given a look too (this option was not dropped, but everything depends on sales of WP7 models in the first quarter of 2012)"
Not much time has passed since then and we see first pictures of a Nokia phone with Android inside. It looks like a carbon copy of Nokia N9 and one of WP7 smartphones. It is surely just a prototype testifying that Nokia is toying with Android to have Plan B if they do not become successful with Windows Phone 7. It is not a commercial product and I am not sure we will see this model under the Nokia brand in shops.
Why Nokia needs Android? The answer is obvious and depends upon the company's fortunes in 2011. So far the actions of its CEO lead to the destruction of Nokia in order to make the asset as cheap as possible. Stephen Elop will not reign forever and his mission will be accomplished at the start of 2012. It will not even depend on whether he manages to sell a chunk of Nokia to Microsoft or any other buyer. It looks that all developments were carried out with the consent of the Nokia's Board of Directors. Android is a back up if WP7 devices do not sell well enough and the sale of the company will not take place. Nokia will have to survive without the leading market share, competitive technology and proprietary OS in high end segments. Android products from Nokia will be a move of despair, but we cannot rule it out in summer or autumn of 2012.
The behavior of Stephen Elop raises some questions. He definitely breaks all corporate rules. He has been already seen in public places teeming with journalists taking the Windows Phone 7 prototype out of his pocket. Even for smaller breaches of Nokia policies people were fired before, but the CEO of the company seems to enjoy the immunity.
Several days after Nokia N9 was announced everybody saw the video from the internal meeting where Stephen Elop asked those present to hide cameras and disable phones as he was going to show off a secret product. A thousand of people listened to him, but a special shooting department of Nokia continued their work, which soon became available to the public. It is difficult to believe that it was not intentional. All previous actions of Elop prove that he creates similar occasions on purpose. Remember the internal blog of Stephen Elop and the entry several days before the new strategy was unveiled on February 11. That disclosure was surely created deliberately. Watch the video as it is still publicly available and Nokia is not trying to react.
What is the rationale behind this disclosure? Elop does not understand that impressive reviews of Nokia N9 do not necessarily translate into high sales of the product. The CEO wants to prove to everybody, including Nokia employees that only Windows Phone 7 can save the company.
As I said before, the interface of WP7 was not customized by Nokia. It is a dream of many users, but Nokia got the same agreement as others and received no preferences from Microsoft.
Nokia never created two products with the same design and price, but featuring different OS inside. It would doom one of the devices from the very outset. Nevertheless, while unveiling the first Windows Phone 7 to its employees (Sea Ray Project) Elop showed it to be a complete copy of Nokia N9. It is silly unless you know well that one of the solutions will not be popular at all. I think you can easily guess which of the two models will be left languishing by the wayside.
The delay of Nokia N9 also aims to help the success of WP7 smartphones. There is no other explanation.
Stephen Elop has denied on several occasions the rumors that Nokia might be sold. The first time he did it was right after I twitted that it was possible which quite surprised me Ц someone is being too sensitive. But now I can share some amusing facts with you that shed some light on the presale preparations of Nokia.
Nokia has been always using the principle of independent development of phones in order to save on large quantities production and the company owns about ten factories around the world with a capacity for mass production of cell phones which Nokia has been doing.
However, the company has ordered production of WP7 smartphones to a Taiwanese company called Compal (according to Digitimes well-known for their sources on Taiwan). I can't find any logical explanation to this. The very same manufacturer produced Nokia Booklet 3G because Nokia did not have a computer production but Nokia's phone production facilities are one of the best in the world and outsourcing is always more expensive. Samsung, LG and HTC produce WP7 phones using their own factories. For some reason Nokia decided to act as an also runner like Acer who also produces phones at Compal. The story gets even more interesting since Nokia N9 which has very same specs and requires same production techniques will be assembled by Nokia itself.
Why? Is it that difficult to produce a WP7 smartphone? Imagine that you want to sell Nokia's production lines and a part of the company to Microsoft. This would be a huge deal and the antimonopoly services on request of other manufacturers might get nosy and ask whether the new owner (who owns both the OS and the phone production) use it to his advantage and compete unfairly Ц such an investigation could create a threat to Nokia's WP7 sales. So, in order to eliminate the possibility of such an outcome the company needs to outsource the production. So in the end we have a transparent deal while the production is outsourced to a third party which has nothing to do with the deal Ц an elegant solution.
I must note that Microsoft buying a part of Nokia is not yet a fact Ц only a possibility. But currently Nokia is taking actions to raise the company's value for the sale. Besides the issue I have mentioned there is also another one: last week Nokia decided to close the separate navigation entity called Navteq and incorporate it inside the Nokia structure. Usually a company does that to increase its market value. There is usually only one scenario when the management needs to increase the capitalization Ц an acquisition.
Another clue: Compal expects to produce 4.5 million smartphones for different companies in 2011, 125 thousand of them are meant for Nokia Ц not so many to be needing an outsource production but Nokia's motives get clear.
As you may know Nokia is not going to continue the development of MeeGo that consumed И300 million of investments in 2010 alone. However, the work will not go to waste Ц the company is planning on porting the Nokia N9 interface to S40. Some staff will be laid off and some will stay. In my opinion, if such a port will ever take place we will get a very modern interface on regular phones and Nokia will gain an advantage for some time. I wonder how the market is going to react to touchscreen S40 (the second generation Touch&Type). Such phones might appear in Q2 2012 already. Besides a full touchscreen interface the phones will also receive multitasking. This means that the company expects Symbian to die soon and is looking for a replacement for cheap touchscreens. This is logical and right. But until the second gen Touch&Type (though there will be some phones without the touch keypad so the name might be different) they will have to sell S60 5th gen phones which are already completely obsolete. So, from any angle there are difficult times in store for the company and so far we only hear intentions to act.
For a few weeks now on Windows Phone 7 dedicates websites there have been a lot of articles about why vendors in the US do not recommend WP7 phones to their customers. According to the authors of such articles the vendors should be happy to work with WP7 and not with Android or iPhone. But vendors beg to differ. Let's try to understand why.
Vendors' enthusiasm usually depends on the compensation they receive after selling a phone. In the US a vendor will receive a higher reward for selling a WP7 phone than an Android so for a vendor who is far from the market plots and intrigues Microsoft products should be more profitable. Then why they discourage people from buying WP7? Because if the customer returns the phone he purchased the vendor will lose his compensation. So the vendor is not sure that he will receive his compensation when selling a WP7 phone Ц they opt to sell other phones with a much lower risk of returns. The problem is not in the flaws of Microsoft's relations with retailers (though they also exist). The problem is that the buyers tend to react negatively to their user experience with WP7. Of course, I am not talking about die-hard fans of this platform Ц I am talking about regular users who look for a smartphone, the majority of buyers. So far Microsoft's efforts to attract the mass buyer have been failing.
Not long ago I visited a few mobile stores in Berlin in search for WP7 phones. The minimum price for them in Berlin is 50 eurocent with a 12 or 24 month contract or 400 and more without one. HTC Mozart costs И479 and all the sales consultants unanimously tried to discourage me from buying it. Their argument was the prices on ebay.de where you can buy a new Mozart for just И180-200 SIM free. This is lower than even the bulk prices for retailers and it means that the vendors have lost any hope to sell it and offer it on the gray market. In the past it was a common practice but today it is a very rare phenomenon.
This is just another detail that helps us understand what is going on around the Microsoft mobile OS and what company needs to expect in fall when they launch the second wave of devices on this platform. I don't think that they will immediately become popular Ц users are cautious about buying them and the vendors are not eager to sell them.
Last week Sony Ericsson announced three mew phones and a couple of accessories. We have alredy reviewed this news so I'll just leave you the link to it.
I really liked the looks of Xperia Ray Ц real Sony Style as we love it. we could criticize it for lack of metal but it is merely nagging Ц the phone looks very nice. But the И350 price in Europe might be too high by the release time in Q3 and there will be a lot of competition. Also, this phone kills the unborn Sony Ericsson Neo which wasn't released due to the earthquake in Japan. Well, actually it was released but in a very limited batch on a few markets where it could not compete with phones like Samsung Galaxy S i9003. Xperia Ray will make a nice gift for Sony Style lovers but will never be able to compete with the Korean products. In the next few months the prices will be revised several times and the phone's current pricing is inadequate.
While I was in Germany I managed to visit Berlin's Sony Centre and I was amazed by the discounts Ц some stiff was practically free. This means that the phone sales are very low and accessories remain unsold. Usually a company produces a couple accessories for every 100 phones. Sony Ericsson has always been producing a bit more and the unsold batches of accessories show that the company has lost a lot of loyal customers. Today the company is struggling for very existence but fails. The price of Arc has fallen dramatically and it can be bought for И450 in Europe. Same applies to all the other phones Ц the company's goal for 2011 is to sustain the 1% of the market they have now.
ЌаAt the investors' day Teliasonera has reported their successes, you can find the full version here.
As usual, the company is trying to change traffic charges because the carriers' expenses into this service significantly exceed their profits. See for yourself:
They have also provided very interesting data on how fast the Swedish users switch from regular phones to other devices. Look at the growth of smartphone users, the rise of tablets, and , meanwhile, the fall of mobile traffic of regular laptops. This trend means that people are using smartphones and tablets more actively now instead of laptops. This also proves that no single device can satisfy all the user's needs today. Of course, we must also consider that the total amount of traffic keeps growing but the fall of the laptop share of traffic proves mu point.
So far the profit from traffic is insignificant for the carrier and, I think, we will be observing this number to grow in the next decade.
The Teliasonera's of making profit on traffic is simple Ц instead of unlimited Internet access sell traffic packages (price will depend on the speed) to make the service profitable.
There have other interesting solutions to common carriers' problems so I recommend you to read it.
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Published 28 June 2011
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