Analysts continue to heap hot coals on Nokia’s head, and their latest wave of pessimism centers on Microsoft’s revelation last week that Windows Phone 8 will not be backwards compatible with the current mobile OS, as sported on Nokia’s flagship Lumia family. Of course, the gloom around RIM is even deeper, though the BlackBerry maker continues to insist that, by sticking to its own OS rather than taking the Nokia route, it will turn itself around once it releases its latest upgrade later this year.
The problem for Nokia is that, although Lumia users will get an updated start screen and other features, they will not be able to upgrade to WP8 when it appears later this year. That may drive Lumia owners to other brands when they upgrade, or will leave customers delaying a Windows Phone purchase until the new version is availalable, say critics.
The risk of delay is particularly real because Microsoft has been unusually successful in stirring up market interest in its brace of new operating systems, Windows 8 and WP8, which will share a common code base and user interface, making it easier for developers to target multiple device types with one app. Nokia, of course, has downplayed the issue. Its SVP of program and product management, Kevin Shields, told TheVerge: ‘I think that ultimately your typical customer probably isn’t all that aware of this upgrade thing.’
Analysts at Nomura beg to differ, with Stuart Jeffrey downgrading his sales forecasts for Nokia in a new client note. He predicts that Nokia’s revenue from web-enabled devices like Lumia 900 will be €6bn ($7.5bn) next year, down from a previous estimate of €10.9bn. He also slashed volume forecasts, to 34m Windows Phone devices in 2013, down by 41%.
‘We had hoped that Q3 would represent the low point in Nokia’s competitive cycle,’ Jeffrey wrote. ‘An abandoned strategy in featurephones combined with an apparent increase in competitive pressures in Windows Phone lead us to cut revenue estimates that the recent restructuring announcement does not fully offset.’ It was also recently reported that Nokia had cancelled its development of a Linux-based operating system for low end webphones, which could have resuscitated its offering in emerging markets, where it is under pressure from low cost Android models.
On the smartphone front, Nokia insisted it would minimize the disadvantages for its current user base. ‘The reason a full update to the Windows Phone 8 platform is not possible is primarily due to the jump in hardware capability for future devices, which can’t be made available on existing hardware,’ spokesperson Doug Dawson told IDG, but pledged that Nokia would make sure that current Lumia users would get ‘many of the benefits’ of WP8 such as the new start screen and user interface, improved camera function, and games from Zynga.
However, Nomura was not the only analyst which was sceptical. Malik Saadi of Informa praised the WP8 plans but commented: ‘Operators and users will hold on until the new devices are in the market this coming autumn. This will have a serious impact on Nokia’s financial performance this quarter as the company relies strongly on Windows Phones as the main platform for its smartphones.’ Nokia also runs heightened risk if WP8 is delayed or suffers glitches, hardly an unknown factor in Microsoft’s track record.
Another Nomura analyst, Rick Sherlund, is also negative about Nokia, but for a different reason – because of reports that Microsoft may develop its own smartphones, tales sparked by the Windows giant’s unveiling of its own tablet. That could create a new competitor for the Finnish firm, though it is also possible that, should Microsoft venture into phones, it will turn to its closest ally for the hardware, in a similar deal to those between Google and Samsung for Nexus.
Over at RIM, the firm has been denying weekend reports that it is seriously considering a rescue plan which some have urged upon it for years ‘ splitting itself in two, to separate its device and services businesses.
Many of RIM’s current problems revolve around its failure to keep up with smartphone trends, leaving the BlackBerry family behind the times, and still waiting for a make-or-break operating system update, BlackBerry 10. Some RIM supporters still have high hopes for the transformative effect of BB10, but given the difficulties even the Microsoft juggernaut has had in denting Android/iOS, those hopes are fading.
RIM itself claims it is ‘almost redefining what a mobile computing platform is’ with BB10, as Vivek Bhardwaj, head of the software portfolio, put it at a developer event this month. But there were already signs that the firm is not confident about its ability to dominate the smartphone again. As well as that telltale ‘almost’, Bhardwaj was keen to talk about other options for the upcoming OS, such as pushing it into the automotive sector. That cannot help but sound like a fallback position, even though there is some logic to it ‘ QNX, the firm RIM acquired and whose web-focused software is critical to BB10, has its roots in the auto segment, which is seen as a major new growth area for mobile platforms. However, the big names are already signing up carmakers, and the comment had sad echoes of similar claims made by Intel for MeeGo, before that got sidelined into the Tizen open source project.
But Bhardwaj made a good case for the need for alternative OSs as the market moves beyond handsets and tablets, toward a multitude of connected devices. And BB10, courtesy of the QNX technology, is set to be far more optimized for the new cloud/browser norms than the current crop of OSs, which are seeking to tack HTML5 and other open web capabilities onto platforms built for downloads and ‘fat devices’, with processing concentrated locally. ‘I certainly don’t believe in a trillion-dollar plus industry with only two players. Actually, I think there’s more than enough space for four or five platforms. It’s very shortsighted if you think there are only going to be three ecosystems,’ Bhardwaj said.
However, there is growing sentiment that RIM needs to cut its losses on the client side and focus on its strengths at the back end, and in IPR. As the core enterprise base moves towards BYOD (bring your own device), there are even bigger challenges for the handsets and OS ‘ but this trend does offer new opportunities for RIM to play a major role in mobile device management by extending its famous messaging and security services, and other back end capabilities, to a multi-device environment. That arguably makes its new Mobile Fusion platform, which brings BlackBerry Enterprise Server functions to third party devices, more important to its survival than BlackBerry 10.
Here lies the logic of breaking RIM in two, and then selling off the handset unit, as predicted by UK newspaper The Sunday Times, which also revived speculation that web players such as Facebook or Amazon might want the hardware and OS, as they seek to create their own mobile platforms. If RIM stays intact, there are fewer likely acquirers, believe many analysts, though the newspaper report clings to the theory that Microsoft might step up (a persistent rumor, though one recently overshadowed by similar speculation about Nokia).
RIM would only tell CNet reporters that it was examining a wide range of strategies. ‘RIM has hired advisers to help the company examine ways to leverage the BlackBerry platform through partnerships, licensing opportunities, and strategic business model alternatives,’ a spokesperson said. ‘
RIM recently hired JP Morgan and RBC Capital to advise it on its business and financial performance and evaluate ‘strategic business model alternatives’. The firm has already announced a restructuring plan to cut costs by about $1bn this fiscal year, and is undergoing a major program of job cuts and supply chain streamlining.
Meanwhile, it may seem that Samsung has stolen all Nokia’s former glories, but the Korean firm is not immune from financial challenges either. Its stock fell by 4.2% to a four-month low in Seoul on Monday amid speculation that second quarter earnings might miss some analysts’ estimates. Taurus Investment & Securities reduced its estimate for the company’s Q2 operating profit to KRW6.9 trillion ($6bn) from KRW7.2 trillion, though this was not handset related ‘ most analysts are citing weaker than expected demand for as televisions.
However, JPMorgan Chase – which also warned last week that Samsung’s quarterly earnings could fall short of consensus forecasts ‘ thinks nervousness about smartphones is a factor in the stock’s decline. Those nerves are probably overblown, the analysts believe, and relate to very high expectations. ‘Some bets that earnings may be below estimates in the second quarter, and speculation that growth of smartphone market may slow a bit in the second half, which I don’t think is the case, are driving the stock lower,’ Lee Sun Tae, an analyst at NH Investment & Securities, told Bloomberg. ‘The decline is overdone.’
And Samsung’s mobile chief, JK Shin, remains bullish. Hevtold a press conference in Seoul that the new Galaxy S III should help mobile earnings beat their first quarter record. ‘We’re getting far better feedback on the model overseas than we experienced with the Galaxy S II,’ Shin said, although he did not offer a specific forecast for second quarter results. In Q1, the mobile division posted a record profit of KRW4.3 trillion ($3.7bn).
Shin believes the S III will cross the 10m-unit milestone ‘ a key metric for Samsung ‘ by July, now it has shipped in the US, Korea and many European markets. The firm has sold more than 50m units of the Galaxy S and S II over the past two years. In Q1, it sold 44.5m smartphones in total, almost half its overall handset tally of 93.5m units.
However, Samsung does face some difficulties. Carriers in various markets report delays or shortages, while some batches of the smartphones could be held up in US Customs because of ongoing action by Apple, which is seeking injunctions against devices that it claims infringe its patents. Verizon and T-Mobile USA have no S III in-store launch date yet, while Reuters reports slow shipments in various territories because of the ‘tight supply of parts’, including the pale blue casing option.