Nokia was slow to grasp how the smartphonealtered the nature of the industry and is now relying heavily on the success of its new Windows-based Lumia phone, writes Tony Glover...
A Nokia, the world's former undisputed top mobile phone maker, has been downgraded to "junk" status by the credit rating agency Standard & Poor's.
This follows another downgrade by Fitch Ratings and some disastrous first-quarter figures from the Finnish phone maker. In January to March of this year, Nokia had losses of €1.34 billion (Dh6.44bn) versus a profit of €439 million for the same period last year. Net sales also plummeted from about €10.4bn to about €7.4bn.
Timo Ihamuotila, the executive vice president and chief financial officer, responded to the credit downgrade by saying that Nokia was in the middle of a transformation programme. He points to Nokia's new Lumia 900 smartphone as evidence of the company's transformation after its controversial decision last year to ditch its own smartphone software in favour of Windows Phone in order to take on the iPhone manufacturer Apple and phone makers such as Samsung, which are making smartphones powered by the search giant Google's Android software.
Steve Wozniak, a co-founder of Apple, describes the Lumia screen as "much more beautiful" than that of the iPhone and Android phones.
By allying itself closely with Microsoft, Nokia plans to tap into the Seattle software giant's plans to provide standard services across a range of connected devices including not only mobile phones but PCs, televisions, laptops and tablet computers.
According to the Silicon Valley technology guru Rob Enderle, the principal analyst at Enderle Group, "The true power of the Microsoft/Nokia partnership is still months off, as the Lumia 900 was not designed in concert with Microsoft. The next generation will be and likely to sport some unique capabilities the 900 now lacks."
Despite an initial software glitch during its US launch preventing some users from connecting to the internet, the Lumia 900 has been well-reviewed and is widely acknowledged to be technically superior to the current iPhone.
"[Nokia's] Windows Phone is fully worthy - at least from a technical perspective - of similar success to that currently enjoyed by iOS and Android devices," says Tony Cripps, an analyst at the research firm Ovum.
But this may be a hollow victory for Nokia, as success in the mobile phone market is no longer determined by hardware technology, at which Nokia excels in comparison to Apple. Nowadays, consumers are more easily tempted by the services and applications available on a phone and by the way that it is marketed as a fashion and lifestyle accessory. And, on both these crucial counts, Apple is well ahead.
"Marketing money talks louder than technology … The only reasons for the apparent failure of Nokia and Microsoft can be those of branding, marketing and retail," says Mr Cripps.
As well as having a better advertising and marketing strategy than its rivals, Apple grasped far earlier than its rivals that the smartphone industry was in a software race more than it was in a hardware contest. By offering a vast range of services and applications on its iPhone in the form of apps, Apple has managed to distinguish its product in the minds of consumers.
"It isn't that the iPhone is that good - it isn't," says Mr Enderle. "It is that the entire solution Apple wraps the iPhone with, including marketing, is vastly better than anyone else has yet launched."
Nokia has been slow to grasp the way the transition from traditional mobile phones to smartphones has essentially altered the nature of the industry.
"Nokia was very insular and, as the market changed, believed its path was the correct one," says Mr Enderle. "This is often an issue with a dominant company. It self-justifies bad decisions because it believes, as leader, it knows more than anyone else."
Nokia displayed similar hubris when it lost out in the early days of China's mobile phone boom by its reluctance to alter its basic mobile phone design to suit local tastes.
If Nokia is going to represent a serious challenge for Apple, it will need the support of network carriers such as Vodafone. By endorsing smartphones other than the iPhone and Android models, mobile carriers stand to regain some of the power they have lost.
"More vigorous involvement by carriers seems vital if the near-duopoly of Apple and Samsung/Android is ever to be challenged, let alone broken," says Mr Cripps.
It is very much in the carriers' interests to start recommending Nokia's Windows phones to customers in order to break the stranglehold of Apple and Google. Both internet companies are increasingly selling directly to their customers and controlling which services and applications they use. This leaves the telecoms carriers in the potentially highly vulnerable position of being relegated to mere utilities.
"Apple and Google, in particular, are also the companies causing the most erosion to carriers' relationships with their subscribers through their powerful disintermediating effects," says Mr Cripps.
If Nokia's new Windows phones prove as popular with consumers as they have with industry reviewers, and, if the carriers decide to strengthen their position by supporting Nokia's Windows phones, then the Finnish phone maker could be heading for a major comeback.