Today’s news that Microsoft is going to acquire the handset business of Nokia for $7 billion recalls the days when Nokia was the king of cellphones, prompting the question of whether it can recapture that kingdom.
Back in the first decade of the 21st century, the Finland-based Nokia was the global leader of the cell phone industry. And the signature Nokia ringtone instantly identified you as the owner of a Nokia when your phone rang in the middle of a meeting, a restaurant or in church. Here’s a You Tube video of classic Nokia ringtones. It goes on for nine minutes but the first few seconds give you a taste of the most well known tones.
The ring tones are just one indicator of the nostalgia some have for Nokias, which were once dominant. According to IDC, Nokia’s share of the worldwide mobile phone market – both smartphones and so-called “feature phones” or basic cell phones – peaked in 2007 at 38.3 percent. It’s been downhill ever since, to 28.4 percent in 2010, 19.3 percent in 2012 and just 14.2 percent in the first half of 2013.
“The numbers tell it all,” said IDC research analyst Ramon Llamas in an e-mail.
“Nokia has always been a major player and iconic brand in the mainstream mobile phone market,” added the research firm Juniper in another report. “However this iconic brand has found it difficult to carry this success over to the high-end smartphone market where Nokia saw a 65 percent decrease in its smartphone shipments in 2012 compared to 2010.”
Even with its Microsoft partnership, Nokia has been unable to make much headway against smartphone market leaders Samsung and Apple, who enjoy number 1 and 2 positions, respectively, in that coveted market. Smartphone sales outpaced feature phone sales globally in the first quarter of 2013, according to IDC.
Sales of smartphones carrying Windows Phone, mostly Nokias, edged past those of devices running the BlackBerry OS in the second quarter of this year, but only because BlackBerry is in a sense worse off than Microsoft/Nokia, which has also found it hard to compete against the Google Android- Apple iOS juggernaut. BlackBerry is looking for a buyer.
Microsoft CEO Steve Ballmer said today that the deal for Nokia is a “win-win” for both companies and in many ways it’s true. The two are already partners since the 2011 agreement in which Nokia said it would abandon its own Symbian operating system for Microsoft’s Windows Phone OS. And with the two now part of one company, the synergies that go along with that will be improved. Microsoft noted in a slide deck presentation it released that Microsoft’s gross margins, which were only $10 per unit under the Nokia partnership, will quadruple to $40 per unit in the wake of the acquisition.
The acquisition of Nokia reinforces Microsoft’s “devices and services” strategy that was announced by Ballmer earlier this year, which Juniper noted is a significant departure from Microsoft’s software and services strategy, which emphasized the Windows OS and leading software applications like Microsoft Office.
The Microsoft-Nokia merger gives both companies an opportunity to make some real headway in the mobile market going forward, but it will continue to be a struggle. Juniper forecasts that Apple and Samsung will continue to dominate the global smartphone market into 2018, reaching a combined 800 million units sold, which is 17 percent more than the total 671 million units shipped from all vendors in 2012. But while Apple and Samsung will still control a combined one-third of the market five years from now, that leaves a fragmented two-thirds remainder of the market for Microsoft, with Nokia, to try to build a presence in.