Why the Lumia will not save Nokia

A day later we have the first reviews of the new Nokia models – the big Lumia and the cheaper Lumia.

The judgement from analysts appears to be favourable overall: Intuitive user interface, great camera and solid build. We need to balance this against the fact that both are in need of some weight loss, but the conclusion is that the phone is a credible offering. So, Nokia have a chance of rebuilding their success with this?

Absolutely not.

How can this be the case?

The phone is pretty good. Nokia is an established global manufacturer and it offers something innovative to the market.

Yes, yes and yes. And the answer is still the same. These will not save Nokia.

Instead of looking at what a load of geeks think, look at what market analysts are saying (those who advise whether to invest in a company or not). At the end of the day, Nokia was trading DOWN by 15.9%. Nokia launches its most important products – ones that will determine whether it has a future – and the analysts sell rather than buy shares?

Why?

Nokia launches a great phone, the geeks love it, and the shares get hammered?

To make sense of this we need to only remember one fact. Analysts (predominantly) buy/recommend shares of companies that meet one condition – they are expected to make more money in the future than they do today.

Thats it. Owning shares is about making money. Nothing else.

If the company promises and delivers spectacular growth, then the share price will quickly increase. Slow increases in growth result in slower rising share prices, and falls in growth will drop the share price. It is that simple. It is about growth.

Making money for shareholders requires companies to increase profit, from generating more revenue, from greater sales. Internal costs and a number of other factors play into this, but essentially it is whether the company has something that is going to sell by the bucketload for a good profit.

And the analysts don’t think that Nokia is going to sell loads of these. If it does, there are questions of whether it can do this at a margin that is expected.

The analysts are right.

So why will Nokia not sell loads of these. Two words: Apple and Android.

Next week Apple announces a new iPhone. This is predicted to sell more than all the other iPhones sold to date combined. Apple will not just sell iPhones by the boatload, it will do this at a higher profit level than anyone else can come close to.

If that wasn’t bad enough – this week Google announced that Android has 1.4m activations per day. That is 1.4 MILLION new Android devices being switched on and registered. Every day. 1.4m, again, and again … And the number is increasing every week. Not just phones, but also tablets. Tablet sales may slow, but they are there and they are growing. Nokia doesn’t have a tablet. Microsoft will launch Windows 8 next month, and this will increase tablet sales, but this will not help Nokia. Even if Nokia did announce a tablet, it is hard to see how it could compete against the iPad and the increasingly crowded and low profit Android marketplace.

Against the behemoths of Apple and Android, Nokia is simply irrelevant.

The other point that is often missed though is that it is not just about the phone, but the ecosystem. Apple doesn’t just have one source of revenue, but several. From the phone itself (the iPhone is the most expensive mainstream smartphone), from the phone contract (Apple gets more than anyone else), from accessories, from content and application purchases (30% goes to Apple). Let’s be clear about this – Apple has built a 21st Century money making machine. And it is only just starting to scale this. With potential moves into TV and emerging markets, there is still a lot of potential growth left.

Google’s Android ecosystem is nowhere near as mature or profitable, but Google also has other businesses that Android compliments – not least of all search. All that data from hundreds of millions of phones provides the intelligence to keep Google search secure in first position as well as providing a global market that will pass a billion users in the next couple of years.

So, despite making a very good phone, the maxim ‘too little, too late’ appears to be perfectly apt.

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