Why no company will acquire Nokia right now

[V-Tech]

 

Huawei, which recently became the No.3 smartphone brand in the world, may be considering a Nokia acquisition. Wall Street reacted violently, prompting an 8% spike in Nokia?s share price. This speculation is part of an annual summertime ritual. In July, we?ll get the rumor about Lenovo buying Nokia and in August, some British brokerage will speculate about Cisco executives flying to Helsinki. However, there is a very specific problem with the idea of any of these companies buying Nokia right now.

 

All of them might be interested in buying a smartphone vendor. But Nokia is not a smartphone company. It?s still a feature phone company.

 

In the latest quarter, Nokia?s feature phone volume totaled  56 million units and smartphone shipments stood at 6 million units. On the revenue front, feature phones outpaced smartphones by 1.6 billion euros vs. 1.2 billion euros.

 

But even that is not the biggest obstacle for a possible acquisition. Here is the problem: year-on-year, feature phone revenue declined by -31% in the March quarter? while smartphone revenue declined by -32%. Nokia?s transition from a feature phone company to a smartphone company is hard to map out at the moment.

 

Here is one way to put the forecasting challenge in perspective. In both Q2 2012 and Q3 2012, Nokia delivered sequential growth in feature phone sales of 3 million units per quarter. This shocked Wall Street and the handset industry, because nearly everyone had expected sequential declines. The best research houses in the business, including the legendary GfK, were blindsided by the Indian Summer had by Nokia?s feature phone business. But as soon as experts had revised their growth expectations upwards, the trend reversed. Christmas-quarter feature phone shipments missed expectations and in Q1 2013, Nokia delivered a stunning 24 million-unit sequential decline.

 

There are reasons for the wild swings in Nokia?s feature phone business. Most of them have to do with the competitiveness of its Asha devices against low-end Android rivals in Africa and Asia. But the upshot is that nobody really saw the scale of  Nokia?s shocking feature phone performance last summer ? or the underperformance over the winter.

 

Nokia missed the feature phone volume estimates issued by many analysts by 10 million units in Q1 2013. This is a company that is still selling more than 55 million feature phones per quarter. Is that going to drop to 50 million units by Q1 2014? Or 40 million? Or 30 million?  Right now, nobody knows.

 

The industry experts have demonstrated they are out to lunch when it comes to the weird fluctuations in feature phone demand over the past year. But this is an issue of great importance for Nokia?s profitability and its ability to maintain scale and presence in emerging markets. The slow decline of feature phone sales would enable Nokia to transition relatively painlessly into being a smartphone vendor; a sharp plunge could trigger a massive cash burn.

 

No company is going to buy Nokia until people get a better grasp on whether the sudden deterioration of its feature phone division this past winter was an anomaly or a sign of accelerating decay.

 

 

http://bgr.com/2013/06/19/nokia-acquisition-analysis-no-deal/

[Growled Member]

A lot of people here will disagree but one problem I see is Nokia's reliance on Windows phones for their smartphone sales. WP is not as popular as Android and iOS, and may never be. Nokia needs to diversify. 

[V-Tech]

A lot of people here will disagree but one problem I see is Nokia's reliance on Windows phones for their smartphone sales. WP is not as popular as Android and iOS, and may never be. Nokia needs to diversify. 

 

I kinda agree with you but you can always say that in the past Android wasnt that popular like iOS and they still made it.

Maybe same can happen with Nokia and Windows.

[+Nik Louch Subscriber²]

Of course nobody would buy Nokia.  MS have them pretty much over a barrel these days, whoy would anyone buy into that position.

 

Sure, if sales were spectacular, then maybe, but they're not.  And if they were, MS would probably have first refusal anyhow.

[Growled Member]

I kinda agree with you but you can always say that in the past Android wasnt that popular like iOS and they still made it.

Maybe same can happen with Nokia and Windows.

 

Maybe. I keep hoping so because competition is a good thing. However, I'm not holding my breath.

[FloatingFatMan]

^ Indeed. Also, Microsoft just cannot afford the risk of someone buying out Nokia and dropping WP; they're just about the only OEM making WP devices!  If it came to that, MS would either buy Nokia themselves, or give them a crapton of money to keep the wolves at bay, like they did Apple back in the 90's.

[MandateOfHeaven]

I kinda agree with you but you can always say that in the past Android wasnt that popular like iOS and they still made it.

Maybe same can happen with Nokia and Windows.

I doubt that WP will ever become as popular as the other two platforms.  The reason, I think, is that the smartphone market may be already be near its maturity.  The people who now own smartphones have invested their money into apps on the platform they're currently using, and may be discouraged by the need to have to spend more money for the same/similar apps on top of having to relearn a new OS.

 

Of course, you'll always have people switching back and forth between platforms, but IMO, the numbers aren't going to be significant, unless one of the three platforms (WP, iOS and Android) innovates enough to drive another revolution in the industry.

 

Basically, the way I see it, unless Microsoft can outperform the other two platforms through something innovative and compelling, and continue to rely on old ideas that have already been implemented, they may never be able to make any significant intrusion into the smartphone market, but that's just my opinion.

[V-Tech]

I doubt that WP will ever become as popular as the other two platforms.  The reason, I think, is that the smartphone market may be already be near its maturity.  The people who now own smartphones have invested their money into apps on the platform they're currently using, and may be discouraged by the need to have to spend more money for the same/similar apps on top of having to relearn a new OS.

 

Of course, you'll always have people switching back and forth between platforms, but IMO, the numbers aren't going to be significant, unless one of the three platforms (WP, iOS and Android) innovates enough to drive another revolution in the industry.

 

Basically, the way I see it, unless Microsoft can outperform the other two platforms through something innovative and compelling, and continue to rely on old ideas that have already been implemented, they may never be able to make any significant intrusion into the smartphone market, but that's just my opinion.

 

I will have to disagree about the part where the market is near its maturity. We have no idea what the future holds for us. No one would guess 10 years ago that this is the way cell phones would go and same can be said about basically anything and everything. 

 

One huge innovation from MS/Nokia can change everything or a new OEM/OS for that matter.

 

Technology is growing and growing fast. Anything can happen.

[M_Lyons10]

I kinda agree with you but you can always say that in the past Android wasnt that popular like iOS and they still made it.

Maybe same can happen with Nokia and Windows.

 

Yeah, with Samsung owning so much of the Android market, I think more companies are going to have to look at alternatives to Android to be honest.  All of the manufacturers can't give you the same product and expect people to want their products over someone elses...

[chrisj1968]

I doubt that WP will ever become as popular as the other two platforms.  The reason, I think, is that the smartphone market may be already be near its maturity.  The people who now own smartphones have invested their money into apps on the platform they're currently using, and may be discouraged by the need to have to spend more money for the same/similar apps on top of having to relearn a new OS.

 

Of course, you'll always have people switching back and forth between platforms, but IMO, the numbers aren't going to be significant, unless one of the three platforms (WP, iOS and Android) innovates enough to drive another revolution in the industry.

 

Basically, the way I see it, unless Microsoft can outperform the other two platforms through something innovative and compelling, and continue to rely on old ideas that have already been implemented, they may never be able to make any significant intrusion into the smartphone market, but that's just my opinion.

 

 

This is MS's weakness. in niche markets or any market, MS has shown a pinache to simply buy a company within that market just to get a "mature" company in that market. I use the skype example alot. MS will be a part of it's own downfall because of this.

[M_Lyons10]

I kinda agree with you but you can always say that in the past Android wasnt that popular like iOS and they still made it.

Maybe same can happen with Nokia and Windows.

 

Yeah, with Samsung owning so much of the Android market, I think more companies are going to have to look at alternatives to Android to be honest.  All of the manufacturers can't give you the same product and expect people to want their products over someone elses...

[MandateOfHeaven]

I will have to disagree about the part where the market is near its maturity. We have no idea what the future holds for us. No one would guess 10 years ago that this is the way cell phones would go and same can be said about basically anything and everything. 

 

One huge innovation from MS/Nokia can change everything or a new OEM/OS for that matter.

 

Technology is growing and growing fast. Anything can happen.

 

I could be wrong about the smartphone industry nearing its maturity, however, just looking around me, I can see that the majority of the people I've come across own some kind of smartphone, thus leading me to surmise that even if we're not yet near the peak of the market, but it's certainly fast approaching.  If Microsoft doesn't innovate fast or significantly refine an old idea, then their window of credibly competing with Android and iOS will get smaller and smaller.

[V-Tech]

I could be wrong about the smartphone industry nearing its maturity, however, just looking around me, I can see that the majority of the people I've come across own some kind of smartphone, thus leading me to surmise that even if we're not yet near the peak of the market, but it's certainly fast approaching.  If Microsoft doesn't innovate fast or significantly refine an old idea, then their window of credibly competing with Android and iOS will get smaller and smaller.

I actually think that Apple will have a big part of what will happen next. I know a good amount of people (personally and from what i read on the net) that are waiting to see what Apple will do next. Depending on that they will decided of stay with apple, move to apple or look for something new.

 

iOS 7 for example was a disappointment for a lot of people. If the next iPhone will disappoint people as well i can see a big move from Apple to something else and something else can mean WP as well.

[Dot Matrix]

A lot of people here will disagree but one problem I see is Nokia's reliance on Windows phones for their smartphone sales. WP is not as popular as Android and iOS, and may never be. Nokia needs to diversify. 

 

Diversify into what? A flooded deadbeat market? Why the hell should they be spending money right now expanding into markets which they'll never capture? That would be money going out the door, never to come back. Nokia doesn't need to diversify, it's settled into a market and has a positive image in the marketplace. People know Nokia, and thanks to that, are getting to know Windows Phone. They're focused providing the best experience for WP users, and on a clear path to recovery, why ruin that?

[MandateOfHeaven]

I actually think that Apple will have a big part of what will happen next. I know a good amount of people (personally and from what i read on the net) that are waiting to see what Apple will do next. Depending on that they will decided of stay with apple, move to apple or look for something new.

 

iOS 7 for example was a disappointment for a lot of people. If the next iPhone will disappoint people as well i can see a big move from Apple to something else and something else can mean WP as well.

 

That's a very good point you brought up about people waiting to see more from what Apple has to offer in iOS 7.  This is a good opportunity for Microsoft to eat into the smartphone market share if they can convince the average smartphone users.  If Apple does disappoint, then it'll most likely be geeks like us who'll shun Apple and look for other platforms like WP or Android.  The average smartphone users probably aren't as sensitive to minor to moderate changes in the way the OS looks/function as much as the technology enthusiasts.  There may be changes in the flow of users to different platforms, but I don't think it'll be anything earth shattering.  Then again, any positive change for the WP platform is always a good thing, especially for competition, a key driving force in innovation  :)