Analyst insists Nokia must build a WP7 future

While Microsoft and their platform are slowly expanding grounds, Nokia is continuing to travel down a negative path with sales plummeting and revenue decreasing. Compared to the glory days when the company’s brand was used to describe mobile phones as much as the term mobile, at present a radical change is required for them to continue within this competitive market. Analysts know this, consumers know this, and more importantly so does Nokia.

Along with countless reports and articles covering a potential join of the hands between Nokia and Microsoft, an investment analyst, who has sent a memo to the CEO of both companies urging them to work together and create Windows Phone 7 handsets, has provided a huge push in a positive direction.

The analyst, Adnaan Ahmad of Berenberg Bank, doesn’t hold back in his note with covering WP7’s (and – to an extent - Nokia’s) competitors and pointing out that he knows both Steve Ballmer and Stephen Elop must be “both sick and tired of hearing how great and innovative Apple and Android (Google) ecosystems are”. Moving onto say that “they have hundreds of thousands of applications, growing revenue at 50%+ per annum and gaining market share globally,” and he is absolutely correct in his referencing – but Microsoft already know this, they are in it for the long haul.

Directing at Nokia, Adnaan continues, “I remember the days when Nokia (with Jorma Olilla at the helm) ruled the roost, European market share was above 50% and US market share was in the 35% range.” While quoting what Stephen said in his recent Q4 earnings release, “Nokia faces some significant challenges in our competitiveness and our execution. In short, the industry changed, and now it’s time for Nokia to change faster,” he agrees that now is the right time for Nokia to change (perhaps from Symbian altogether?) and with WP7 readily available in it’s infant stage, now could prove to be the only time for action.

Moving on from Adnaan’s critical analysis of the current situation Nokia has found itself stuck in, he throws a right-hand punch to follow the left-hand jab he threw above:

1. Android a no-go for now. This may have been a good idea one to two years ago, but it is not today. You will never be able to catch up with Samsung, which should rule the Android show midterm given its economies of scale, product breadth (TVs, PCs, phones and tablets), as well as its captive component base. And that market is going to get even more crowded with China Inc (ZTE, Huawei et al) joining Sony Ericsson, HTC, Motorola and PC vendors. And more significantly, how is anyone going to differentiate on Android long-term?

2. Announce an EXCLUSIVE deal with your ex-colleague, Steve: you get access to their WP7 intellectual property (IPR) scot-free and access to the US market where your share has dived to the low single-digit level, and in so doing cut your bloated handset business R&D budget by at least €1bn, or 30%, which should add 300bps to your operating margin. Get rid of your own proprietary high-end solution (MEEGO) – it’s the biggest joke in the tech industry right now and will put you even further behind Apple and Google. Focus your high-end portfolio around WP7, and over time you can take the cost down (that’s Steve’s job and cost base) to get this into the mid-range market. Push your Symbian solutions into the low-to-mid-range smartphone market as quickly as possible to defend market share versus Android’s upcoming lowered cost ecosystem.

3. You are going to have to cut headcount severely in Finland, where Nokia accounts for around 7-8% of GDP and employment (including ecosystem), but I am sure the Government will be more amenable to restructuring with your share price down 70% since the introduction of the iPhone in 2007. It could obviously get worse if you wait. And the best time to announce it is now.

4. Tell the market by what time you expect the initial products from your exclusive deal with Steve to be released. 

What makes both Adnaan’s points coming to reality and Nokia turning around for the better more likely is due to who is now CEO of Nokia. Stephen Elop, a previous Microsoft employee. Should any deal manage to be successful and a plan be drawn together at Nokia as to how they will tackle re-entering the market as a competitive and worthy opponent to other manufacturers, it should prove to be more effective with an ex-employee of Microsoft at the helm with a vision of change.

We look forward to any progress that can be made with Nokia heading towards the Windows Phone 7 platform, as it really does make sense. What are your opinions on how Nokia can survive, and do you believe WP7 is the way forward for the company?

Source: WinRumors; Thanks Marc O., for the tip