Nokia's handset results for the second quarter of 2011 revealed a major milestone for the company, but not a good one: The world’s No. 1 handset maker has ceded the smartphone market share crown to … the iPhone.
Nokia sold 16.7 million smartphones in the quarter, slipping behind Apple's 20.3 million iPhone shipments.
The obvious question lingers in the air … can Nokia’s partnership with Windows Phone 7 turn things around?
After watching Apple and others leave it behind in innovation, Nokia revealed in February that it would kill future development of its Symbian and MeeGo operating systems and instead partner with Microsoft to develop smartphones powered by Microsoft’s Windows Phone 7. That was a bit of a head-scratcher for industry-watchers who were expecting Nokia to embrace Android instead. But Bing will also power Nokia’s search services across all devices and the Microsoft adCenter will provide search advertising services. The first fruits of the partnership are due out this fall, in time for the holiday season, and Nokia needs a win in order to cling to relevancy in the smart device sector.
But a win is less than certain. While Nokia is looking to Microsoft to help it take share in North America, particularly, the Redmond, Wash., giant has classically struggled in the consumer market — the critical market for smartphone dominance, as we have learned. Existing Windows Phone devices are only marginally making a dent on the scene. Nokia also needs to build an ecosystem at scale — something Android would have given it. Partnering with Microsoft gives it an uphill battle to catch up in the apps game, another linchpin for success. And finally, Nokia’s conversion of the well-loved Symbian OS into a “franchise platform" (i.e. lame duck) has left uncertainty across its vast existing user base, members of which may be quick to switch horses at the next upgrade cycle.
Nokia reigned for years atop the handset market — holding a solid 40 percent market share for quarters on end. While never a big player in the U.S. market, where RIM and Motorola had a stranglehold until iPhone came along, Nokia all but eclipsed rivals in Western Europe and Asia. This quarter, the former global heavyweight’s overall market share slipped to 23.7 percent from 29.1 percent in Q1. Quarterly sales volume was down a full 20 percent year over year. And that’s in a worldwide market where phone sales in general went up 10 percent in the quarter, driven by former Nokia bastion markets.
Nokia still managed to eke out an operating profit and beat analyst expectations thanks to royalty gains ($555.1 million, off of a one-off royalty revenue of $430 million). It also said the handset biz will be profitable in Q3 — it is still the largest phone vendor by volume, after all. But that didn’t dispel the gloom around the market share news.
"To summarize, Q2 was a difficult quarter," Chief Executive Stephen Elop said on the earnings call. "But we're starting to see a very positive impact on the health of Nokia."
It remains to be seen whether Nokia can stem the slippage, or whether it ends up like Palm — once synonymous with “high-end handset," but ultimately finding itself in a faded glory state from which it may not recover.
