Commentary

Nokia, Meet Android

Nokia N8

Maybe Nokia should consider announcing quarterly earnings during a different week than Apple or AT&T does. The Finnish phone giant's 40% plunge in second-quarter profit looked that much worse in contrast with Apple's 78% and AT&T's 26% profit gains, respectively, in the prior quarter. Both companies' earnings were driven in no small part by the iPhone, whose ascendance in the last three years has come at the expense of Nokia.

The company's failures to capitalize on surging demand for smartphones and keep pace with the growth of Apple and Google in the high-end phone market are no secret. But the contrast is underscored when Nokia's earnings are juxtaposed with its rivals.

"Today's results do nothing to increase optimism on Nokia's immediate future," noted Gartner wireless analyst Carolina Milanesi in a blog post earlier today. While Nokia's mid-tier phones are still selling, she added the high end is "getting weaker by the day," putting the average selling price (ASP) of phones under pressure.

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That echoed comments she made in May when Gartner released first-quarter data showing Nokia's worldwide share of mobile phone sales had dropped about 1 percentage point to 35% from a year ago. During the same period, the Symbian operating system that powers most Nokia phones dropped from a 48.8% to a 44% share among smartphone platforms, while the iPhone OS (now iOS) jumped from 10.5% to 15.4%, and Android vaulted from a 1.6% to 9.6% share.

To get back in the smartphone game, Nokia is counting on an upgraded version of Symbian and the launch of its N8 smartphone, expected to be available in some markets later this summer. Its Linux-based MeeGo platform co-developed with Intel is aimed at helping Nokia crack the U.S. market.

While Milanesi agreed Nokia has a lot riding on the N8, its presumed hero device, she threw cold water on that hope as well. "Saying that the N8 delivers the best user interface experience ever delivered by a Nokia smartphone does not mean the experience will be great compared to other smartphones OSs," she wrote. "It is much better than what they have done so far but that does not necessarily mean much."

So even Nokia's best effort at producing a state-of-the-art smartphone will fall short of the competition. Given these developments, reports that Nokia is looking to replace CEO Olli-Pekka Kallasvuo are hardly surprising. (Nokia declined to comment on the matter Thursday.)

But Motorola has shown that making a comeback in the smartphone market is possible even in the face of fierce competition. Through its Android-powered Droid and Cliq phones, the company has revived its fortunes, grabbing an 11.7% share of the North American smartphone market in the first quarter, third behind RIM and Apple.

Nokia earlier this month confirmed it won't adopt Android for any of its future phones. But given its smartphone woes, it might be wise for the company to take a page from Motorola's playbook and hop on the Android bandwagon to regain some ground. That's especially true if it wants to have a bigger footprint in the U.S. Research firm NPD reported in May that Android-based phones for the first time in the first quarter had outsold the iPhone. That looks a lot better than Nokia's current efforts to compete with Apple.

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