Nokia May Be at the 'Last Chance Saloon'

The ills of the once dominant Finnish mobile phone maker Nokia ADR (NYSE: NOK) are many and, to some extent, getting worse. The company may be at 'The Last Chance Saloon.' The bartender is Steve Ballmer of Microsoft (Nasdaq: MSFT). He is pouring Nokia not the Finnish traditional 'long drink', but what he hopes is a nice, smooth and profitable drink of Windows 8 for smartphones.

Windows 8 had better be all that Microsoft has promised for Nokia's sake. It sold fewer of its flagship Lumia smartphones in the third quarter than Apple (Nasdaq: AAPL) did of its new iPhone 5 in its opening weekend!

Poor Sales and Market Share Trend Continues

Nokia's smartphone sales in the third quarter amounted to just 6.3 million units. There were 2.9 million Lumias sold in the quarter, down from 4 million the previous quarter. In the important U.S. market, sales amounted to a mere 300,000 smartphones. That is down about 50% from the previous quarter. In addition, revenues in China fell 80% year-on-year. Much of the blame lies with the fact that consumers globally were waiting for the Lumia smartphones that run on the new Windows 8.

Right now the Windows operating system accounts for only 4% of the global smartphone market, badly trailing Apple's iOS and the Android operating system from Google (Nasdaq: GOOG). Samsung's new Galaxy III runs on Android. That's just another reason it wasn't a great shock that Nokia was bumped out of the top 5 smartphone makers in the third quarter. That was the first time that happened since researchers at IDC began compiling such data in 2004.

Sales are unlikely to improve as much as initially expected in the short term either. This quarter is traditionally the strongest for sales of phones due to the holiday season. However, for Nokia, the flagship 920 Lumia smartphone will not be available for several more weeks. It will also be available only through one carrier, AT&T. This combination will likely hold back sales despite Nokia's market-leading mapping and photo technology.

Carriers Want an Alternative

There is one huge positive in the corner of Nokia and Microsoft though. The telecom carriers such as AT&T, Sprint, T-Mobile and Verizon (NYSE: VZ) want a viable third choice to the current duopoly of Apple and Google.

Verizon's CEO, Lowell McAdam, told the Financial Times recently that “the carriers are beginning to coalesce around the need for a third ecosystem. It'll between [Blackberry maker] RIM (Research in Motion) and Microsoft, and I expect Microsoft to come out victorious.”

He may be right about Microsoft beating out RIM. According to the consumer research firm Kantar Worldwide, in Europe, Windows will overtake RIM's operating system by the end of the year. Nokia's entry-level smartphone Lumia 610 seems to be winning over cost-conscious consumers there. In a first for Windows, it now has more than 10% of the market in Italy.

The Future

Europe could prove to be very fertile ground for Nokia and Microsoft since more than 50% of European consumers have yet to purchase their first smartphone and still have older phones. The brand these consumers is most familiar with is Nokia.

Another plus is that the launch of Windows 8 should give an impetus to developers to build applications and content that is currently lacking on Windows phones. The myriad of apps and content is a huge selling point for Apple.

But getting that content is a slow process and Nokia may not have the luxury of waiting too long. It is burning through its cash position rather rapidly thanks to its continuing operating losses. Standard and Poor's has forecast that, by year's end, Nokia will be down to 3 billion euros in cash. Some credit analysts even doubt whether the company can make a 1.25 billion euro bond repayment in April 2014.

So the Windows 8 effect had better kick in and fast. The next six to nine months will be critical to the fate of Nokia.

This article was originally published on the Motley Fool Blog Network. Make sure to read all of my articles for the Motley Fool at http://beta.fool.com/tdalmoe/.

Can Apple Replicate Its Success in Emerging Markets?

The success of the iPhone from Apple (Nasdaq: AAPL) in the United States is well known to nearly every investor. The iPhone and the iPad are the reasons why the stock has performed so well for so long. But what about the future? At least as far as the smartphone market goes, the future seems to lie in the emerging markets and cheaper smartphones.

The number of entry-level smartphones, according to Deliotte, sold this year (mainly in emerging markets) is expected to soar to 300 million units. This will more than double the total number in use globally to in excess of 500 million units.

Emerging markets, especially China, are key to Apple's future growth. It is expected that in excess of 150 million smartphones will be sold in China alone this year. Apple's CEO Tim Cook has said numerous times that demand there is “mind-boggling”. China, which has surpassed the United States as the world's biggest smartphone market, is already Apple's second-largest market after the U.S. Some analysts are worried that it may be losing its touch in China since its revenues in the region for the second quarter fell by 28 percent to $5.7 billion. The same quarter in 2011 had seen revenues jump sixfold. On the bright side, iPhone sales in the quarter still doubled year-on-year.

The main reason for the drop in Apple's China region revenues is simply competition for market share in the world's biggest smartphone market. The company's main competitor right now has to be Samsung with its Android-powered phones. Android is the smartphone operating system developed by Google (Nasdaq: GOOG). Samsung's smartphones currently have 30 percent of the Chinese market compared to only 10 percent for Apple. That is due to Samsung's strong retail presence in the country, even in the hinterlands.

In fact, Android phones have been so successful in China and other emerging markets that it led analyst Benedict Evans of Enders Analysis to recently tell the Financial Times that “It is very clear that Android is hoovering up market share in emerging markets”. This includes India where Apple is actually struggling, selling less phones there than in Norway. Its market share there is about 3 percent, versus 45 percent for Android-powered phones.

Apple has more to worry about than Samsung too. Microsoft (Nasdaq: MSFT) and its partner Nokia ADR (NYSE: NOK) are placing a definite emphasis on China and other emerging markets as a growth engine. Microsoft believes that the only reason Android is so successful in China is that it happens to be on the cheaper smartphones. It and Nokia plan to match the low prices ($100-$150) while at the same time offering users a better experience with its Windows-powered phones such as Nokia's Lumia, a prototype of which was spotted in China this week.

The major plus for Microsoft's push into emerging markets with its phones later this year is that Nokia, unlike in the United States, has an almost unmatched reputation in the emerging world for producing quality products. But in China, Microsoft is covering its bases by also partnering with Samsung, HTC and ZTE.
Will Apple decide to compete on the low-end of the smartphone market? They may have to do something as the developed markets where they are so successful are becoming saturated. Most likely Apple will decide to the lower the price of their older 3G iPhone in order to make it more affordable to people in emerging markets. If they do this, these phones should sell well due to Apple's reputation. And don't forget that in China later this year Apple will, for the first time, release Siri in Mandarin.   This article was originally written for the Motley Fool Blog Network. Please read all of my articles for the Motley Fool at http://blog.fool.com/tdalmoe/.

Nokia's Last Hope: Lumia

Mobile phone manufacturer Nokia ADR (NYSE: NOK) is no longer Finland's most valuable company as measured by market capitalization. The latest fall in Nokia's share value came after the company announced a surprise profit warning and technical glitches associated with its new Lumia phones.

Lumia is the first Windows-based phone that came as a result of the collaboration between Nokia and Microsoft (Nasdaq: MSFT). It was jointly launched in the US by Nokia, Microsoft and AT&T (NYSE: T). The problem – it it had difficulty connecting to the internet on AT&T's LTE 4G network – came to light soon after the Lumia 900 phone went on sale in the US.

Even more surprising than the technical problems with its new phone was the surprise profit warning. Nokia warned that its low-end phone division – which had always enjoyed great success in the emerging markets – was losing market share much faster than expected. Sales in this division sank 35 percent in the first quarter to about $3 billion.

Low-end phones, which make up 30 percent of Nokia's sales, lost market share to both Chinese manufacturers and devices using the Android operating system from Google (Nasdaq: GOOG). The loss of market share, particularly to Samsung's Android devices, is in large part due to the fact that Nokia is dumping its current operating system, Symbian, rendering those phones obsolete in a few short years.

These recent events just continue to emphasize the fact that Nokia has been left behind in the smartphone race in the last few years. Nokia's decline has left its shareholders smarting. Its stock sank by a fifth just last week after the bad news, leaving it down 90 percent from its peak since the iPhone from Apple (Nasdaq: AAPL) was launched in 2007.

Perhaps the last hope for the company lies in its tie-up Microsoft and the resulting Lumia phones. It has not been an auspicious start for Lumia, however. Even ignoring the technical glitches, initial sales (launched in November globally) of the Lumia range of phones have been disappointing. In the first quarter of 2012, only 2 million Lumia phones were sold. In comparison, Apple sold 37 million iPhones during the same period.

It remains to be seen whether the Lumia 900, with its very reasonable $99 price tag here in the US, will sell. Nokia has even been forced to offer a $100 credit on phone bills to anyone who buys it before April 21 in an effort to stimulate dull US sales so far. Of course, both Microsoft and AT&T are hoping Lumia succeeds too.

The lack of success so far for Lumia certainly calls into question whether consumers really want a Windows-based smartphone. If it turns out they do not want Windows-based phones, the tie-up with Microsoft has sealed Nokia's fate as it now has no future options except producing Windows phones.

Some investors already think the company is doomed as the cost of insuring the company's debt soared to a record high, implying that Nokia's debt was already considered to be “junk” status. The company is not dead yet though and still has net cash of 4.9 billion euros. However, it did burn through 700 million euros in the first quarter and has stated that it must continue spending heavily on marketing the new Lumia phones. So Nokia shareholders should not be surprised to see the dividend eliminated soon.

If the company burns through its cash pile, it may resort to selling assets in an effort to keep afloat. These assets could include mapping technology company Navteq or perhaps even some of its intellectual property rights. But if Lumia phone sales don't pick up some time this year, Nokia itself may be up for sale to Microsoft or other bidders. That would be a sad end for a company that once dominated the mobile phone industry.

This article originally was written for the Motley Fool Blog Network. Please make sure to check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/

Apple's SIM Card War

Not much has changed at Apple (Nasdaq: AAPL) since Steve Jobs lost his battle with cancer. The company is at again, trying to dominate its competitors. This time the battle is for the tiny sim cards which go into every mobile phone.

Apple is again butting heads with the likes of Nokia ADR (NYSE: NOK), Research in Motion (Nasdaq: RIMM) and Motorola Mobility Holdings (NYSE: MMI), which is being acquired by Google (Nasdaq: GOOG) to have its standard adopted for the next generation of slimmer phones. The goal is to have its “nano-sim” lead the technology revolution in the miniaturization of smartphones.

“Micro-sims” (not an Apple product) are currently the standard in phones such as the iPhone. The new nano-sims are thinner and about a third smaller than the micro-sim. Micro-sims must be driving Apple nuts since the company is notorious for wanting to control the entire experience with regard to all of its products. The nano-sims would be made by Dutch company Gemalto in close cooperation with Apple.

This latest battle is taking place in Europe, at the European Telecommunications Standards Institute. Apple has reportedly already gained the advantage over the sim standard offered by Nokia and others because it has offered to the European telecom carriers the design for its nano-sim for free. Apple certainly knows how to win friends.

The competition (Nokia and Motorola) have tried to point out to the telecom companies that Apple's nano-Sim could require a “drawer” to protect it. All phones may then need to be re-engineered with that “drawer” in mind, which would be burdensome to the other smartphone makers not called Apple. Nokia and the others have said that its proposed new sim card has “significant technical advantages” over Apple's nano-sim.

Why does Apple even care about the Sim card? In the past, the company even considered dropping Sims but stayed with them due to opposition from the phone carriers.

Apple is always concerned about the design and usability of its products. A smaller Sim card in the next generation of iPhones and iPads would certainly leave room for other components, such as perhaps larger batteries for the power-hungry devices. But Apple probably has something else more in mind than just adding components to the insides of their devices.

If Apple is successful in its efforts, Apple sees a world someday where iPad and iPhone users would be able to purchase their devices directly from Apple and the phone companies Then consumers could choose the carrier they want and activate the service. Apple is simply using the free sim cards to try to gain more control over an area they currently do not control – the phone carriers. Yes, little has changed at Apple.

This article was originally written for the Motley Fool Blog Network. Please see my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

Sales of $100 Smartphones Set to Soar

The number of entry-level smartphones, selling for less than $100, sold this year is forecast to soar to 300 million, more than doubling the total number in use globally to above 500 million. This forecast comes from Deliotte which also said that there were already roughly 200 million such phones in use worldwide, with most of those having been sold just last year. Deliotte also predicts that due to the soaring number of smartphones sold the number of applications available on these devices will also double to more than two million.

New low-cost chip technology is what is bringing about this whole new world of low-cost smartphones, especially in the emerging economies like China and India where smartphones are now becoming affordable to everyone.

In places like India, high prices for phones have been the main barrier to widespread use of mobile devices. In fact, Apple (Nasdaq: AAPL) sells less phones in India – with 602 million active phone subscribers – than it does in Norway! But it is the cheaper smartphones which sell in India, where it is forecast that smartphone shipments will grow 70% annually through 2015.

This shift toward low-cost smartphones is even more evident in China which surpassed the United States in the third quarter of 2011 to become the world's biggest smartphone market. The Asian brokerage firm CLSA says China's smartphone market will more than double to more than 150 million units in 2012.

In western markets high-end smartphones, like the iPhone from Apple, in the $600-$800 range, dominate. In China, however, such phones account for only one-fifth of total phone sales. The remaining four-fifths of sales that sell in the $100-$150 range and, after subsidies from phone operators, cost very little.

This move toward low-cost smartphones in emerging markets may be the last hope for Finnish mobile phone company Nokia ADR (NYSE: NOK) which has lost its once preeminent position in the industry to rivals like Samsung and Apple. Nokia does have an opening here since Apple's iPhone is perceived globally as a premium product and well out of the reach of many consumers in the emerging markets.

Nokia's management is well aware of the opportunity which lies before it. At the Mobile World Congress in Barcelona last week, Nokia management did state that one of the company's strategic goals was “connecting the next billion” of the global population to the internet through smartphones.

Nokia and its new partner Microsoft (Nasdaq: MSFT) are in particular focusing on China. According to IDC, the most popular operating system there is Android. But Microsoft thinks Chinese consumers are just using Android because it happens to be on the cheaper smartphones. If it offers a better experience through Nokia smartphones, Microsoft thinks it will quickly have the most popular phone software in China. The company is also targeting China by opening mobile application stores there.

Microsoft's partner Nokia believes the smartphone which will revive its fortunes is the Nokia Lumia 610. It believes this model will be at the forefront of the new growth engine for the industry, low-cost smartphones. The 610 should sell well in the emerging markets where Nokia is still a leader. But it remains to be seen if the phone can be profitable enough to turn around Nokia's declining fortune.

The article was originally written for the Motley Fool Blog Network. Please be sure to check out my daily articles for the Motkey Fool at http://blogs.fool.com/tdalmoe/

Smartphone Usage Expands in Emerging Markets

There is a trend in the technology and telecommunications spaces that has gone almost completely unnoticed by U.S. investors. That trend is the rapid expansion of entry-level smartphone usage in emerging markets.

Low-cost semiconductor technology has pushed down the price of a basic smartphone to below $100 in emerging markets over the past year.

In emerging markets such as India, high prices have been the main reason there has not been widespread use of smartphones. High prices have slowed the adoption of smartphones such as Apple's (Nasdaq: AAPL) iPhone and phones using Google's (Nasdaq: GOOG) Android operating system in these markets.

The new microchip design changing the smartphone market in developing countries was developed by the British company, ARM Holdings ADR (Nasdaq: ARMH).

The company has another microchip, the Cortex A7 processor, in the works by 2013 that will further advance the use of low-cost smartphones. It will be one-fifth the size of those used in other smartphones and five times more efficient. Arm says it will enable entry level smartphones below $100 which will be equivalent to a high-end $500 smartphone in 2010.

This is an important breakthrough. The CEO of Arm, Warren East, said “The sub-$100 price point is when we can start to talk about connecting the next billion people to internet content and services over mobile devices.”

The base of smartphones costing less than $100 is already estimated to be about 200 million, with the majority of those phones have been bought in the past year.

Now research from the consulting firm Deloitte says adoption of these cheap smartphones is expected to be even more rapid. Deloitte forecasts take-up of these low-cost smartphones to more than double in 2012 to above 500 million!

This development will help Arm Holdings to maintain its dominance in the mobile phone and tablet market. Chips, using its designs, are already in on the most popular products like Apple's iPhone and iPad devices.

Needless to say, it will also raise demand for connected devices, applications and the spectrum needed to carry vast amounts of data in the emerging world.

Deloitte predicts, for instance, the number of applications available on smartphones to double in 2012 to more than 2 million as a result of the popularity of $100 smartphones in emerging nations.

It will also obviously help the manufacturers of these low-cost smartphones such as Nokia ADR (NYSE: NOK), which remains a leader in mobile phone sales in emerging markets. Nokia was expected to have sold over 400 million phones in 2011, of which more than 300 million were sold in emerging markets.

The worry here for Nokia and others is whether players like Korea's Samsung and Apple will come out with low-cost versions of their successful smartphones. These two companies have surpassed Nokia as the biggest global manufacturers of smartphones last year.

No doubt Apple and Samsung will do so – Samsung is already pushing $200 versions of its Galaxy smartphone in emerging markets.

So the window for Nokia to regain its dominant position in emerging markets may be a narrow one.

This artciel was originally written for the Motley Fool Blog Network. To read all of my daily article for the Motley Fool, please go http://blogs.fool.com/tdalmoe/