Few years ago, no one would have believed that Nokia, former world’s largest handset maker would be in deep trouble.
The Finnish company had in the past few years seen its stranglehold on the phone market eroded first by the likes of Apple’s iPhone series and Andriod phones from the likes of Samsung.
Today, Nokia has fallen from the top. It is no longer the top feature phone and smartphone vendor. Samsung dethroned Nokia to become the world’s top mobile phone vendor according to the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker for the first quarter of 2012. Nokia has been the global market leader in total mobile phone shipments since the inception of IDC’s Mobile Phone Tracker in 2004.
Nokia posted €1.34 billion loss in its first quarter 2012, despite shifting two million Lumia handsets. Nokia’s net first quarter sales totalled just €7.4 billion, down from €10 billion the previous quarter. Samsung’s ascension to the market’s top spot is largely a reflection of its gains in the smartphone market over the past two years. Analysts have attributed Nokia’s decline in large part to its late response to Apple’s iPhone which redefined the smartphone market in 2007.
Global smartphone shipments grew 41 per cent annually to reach 145.3 million units in Q1 2012. Samsung overtook Apple to become the world’s largest smartphone vendor by volume with a record 31 per cent market share. Samsung’s global smartphone shipments rose 253 per cent annually to 44.5 million units, as demand surged for its popular Galaxy models such as the Note, S2 and Y.
Tom Kang, Director at Strategy Analytics, said “Nokia maintained its position as the world’s third largest smartphone player, but its global share fell from 23 per cent in Q1, 2011 to just 8 percent in Q1, 2012. This is Nokia’s lowest market share level in the smartphone category since 2002. Nokia’s new Microsoft Lumia portfolio has recently gotten off to an encouraging start in the critical United States market, but shipments there are not yet large enough to offset the firm’s tumbling Symbian volumes in the rest of the world.”
Nokia’s alliance with Microsoft to use Windows Mobile operating software in Nokia smartphones has not paid off despite efforts by Mr. Stephen Elop, Nokia’s chief executive officer. With Nokia’s Lumia mobile phone range failing so far to revive sales, its position still looks frail. Nokia shares have lost 90 per cent in five years and its debt is rated junk by three major ratings agencies, S&P, Moody’s and Fitch.
Standard & Poor’s downgraded Nokia’s long-term corporate credit rating to ‘BB+’ from ‘BBB-’ and its short-term corporate credit rating to ‘B’ from ‘A-3’. S&P said that it now believes that revenues from the Devices and Services division could decline in 2012 by the same extent as in 2011 (minus 18 per cent) after Nokia reported first quarter 2012 revenues below expectations, particularly for Symbian-based smartphones.
Microsoft is already paying Nokia $1 billion a year to use its software on Lumia smartphones. And investment bankers familiar with the technology sector said the support could extend well beyond that amount, if Nokia’s problems intensify. “I don’t see Microsoft owning Nokia, but it would definitely provide financing to the tune of a couple of billion dollars,” said one veteran technology banker. Any Microsoft support for Nokia would be more likely to take the form of an inter-company loan, or an equity stake, rather than a full takeover, a second banker said.