Why the Nokia and Microsoft Windows Phone partnership is in big trouble

So I have been wondering how Windows Phone 7.5 and the Nokia Lumia’s did in the United States and have been trying like hell to find out sales numbers.

Seriously, for months now I have been trying to find out.

Now we have the answer.

It’s tucked away in Nokia’s recently released Q2 interim report and it’s not great boys and girls.

It’s really not that great.

Before we get there, I wanted to talk a little about why I think that this partnership is not really heading to a great place.

I remember when Nokia and MSFT shook hands, i had a dreadful feeling that this wasn’t going to go that well. I documented some of my reservations here.

In April of 2011 I wrote:

Now my take on the deal..

I’m not sure that I see the value in the union. I understand from a strategy perspective why Microsoft had to do something but I’m not sure why Nokia would be the company that was chosen.

In the united States, Nokia is hardly the sexiest brand of smartphone even though they have tremendous smartphone coverage in Europe and Asia.

I’m just not certain that long term, this can be a successful union between these two companies. There is a lot to be worked out beyond signing the papers.

How do updates get rolled out? Who has the final say with deisgn decision? How are aesthetic conflicts resolved?

I’m just not sure how their final hybrid product will take on Apple and Google’s Android phones.

Well, we are starting to see how this union is working.

From Nokia’s report, we have some useful information. I’ll walk you through it.

Lumia Q2 volumes increased quarter-on-quarter to 4 million units. – *** Sounds like a great number. 4 million Nokia Lumia units sold worldwide in 3 months. Not shabby right?

Devices & Services Q2 non-IFRS operating margin negative 9.1%, adversely affected by EUR 220 million of inventory-related allowances for our Lumia, Symbian and MeeGo devices. Smart Devices Q2 gross margin and contribution adversely affected by the inventory-related allowances. Q3 expected to be a challenging quarter in Smart Devices due to product transitions. *** We’re going to lose money moving to Windows Phone 8 because of the way it was abruptly rolled out and all the stuff we bought for Windows Phone 7.5 and now will not be able to use

We shipped four million Lumia Smartphones in Q2, and we plan to provide updates to current Lumia products over time, well beyond the launch of Windows Phone 8. We believe the Windows Phone 8 launch will be an important catalyst for Lumia. *** It’s all going to come down to Windows 8 for the Lumia and the company’s future

The year-on-year decline in our Smart Devices volumes in the second quarter 2012 continued to be driven by the strong momentum of competing smartphone platforms relative to our Symbian devices, partially offset by sales of 4 million Lumia devices. All regions showed a significant year-on-year decline in the second quarter 2012 except for North America, where the sharp decline in sales of Symbian devices was more than offset by sales of our Lumia devices including the Lumia 900 with AT&T and the Lumia 710 with T-Mobile. ** *In the US, our stuff sucked but we sold some Lumia Phones so it kind helped hide the fact that nobody in that country is buying our phones..

Some sunny news about the Lumia

– In April, the Nokia Lumia 900 went on sale in the United States exclusively through AT&T. Lumia 900 sales exceeded our expectations from the start at AT&T and was consistently among the top selling smartphones on Amazon in the United States. The device is our first LTE phone and has won praise for its design. According to a survey of US customers conducted for Nokia by the independent research company Nielsen and published in July, 95% of Lumia 900 owners are willing to recommend the device to others. Nokia also launched a non-LTE version of the Lumia 900 in other parts of the world during the second quarter. *** People who buy our Lumia phones in the US love them and even though they say they will tell other prople, they just don’t tell anyone else

and then the Outlook

NOKIA OUTLOOK
– Nokia expects its non-IFRS Devices & Services operating margin in the third quarter 2012 to be similar to the second quarter 2012 level of negative 9.1%, plus or minus four percentage points. This outlook is based on our expectations regarding a number of factors, including:
– competitive industry dynamics continuing to negatively affect the Smart Devices and Mobile Phones business units;
– consumer demand particularly related to our current Lumia products; and
– the macroeconomic environment.
– Nokia expects the third quarter 2012 to be a challenging quarter in Smart Devices due to product transitions.
*** It’s going to be a tough third quarter and we have to legally tell you that we’re not sure our phones are going to sell well. Our Lumia is in transition and the rest of our phones aren’t doing that great. Buyer beware.

So, the question is, how many phones did Nokia sell in the second quarter in the US?

IMG_10022014_144403

That’s 900,000 less than the same time last year if the chart isn’t lying.

Let’s put this in perspective. Verizon alone (just Verizon) reported selling 2.7 million iPhones in the same period and that’s just Verizon!

So, where is all this going? What’s going to happen to this MSFT/Nokia union?

I have some opinions about where this will end.

This is especially tragic because everyone I know who has a Nokia Lumia LOVES it. They tell you how much they like it BUT they don’t evangelize.

They don’t seem to care if you have one too. I have never met a rabid Lumia fan who would do anything to get you to buy a Lumia too.

Ultimately, that seems to me to be the problem. Apple has disciples, Google has disciples and Windows Phone has happy users.

My theory is as follows:

Windows 8 will get here in October/November and will have the press and consumers buzzing with understandable confusion (Metro is a big change).

Windows Phone 8 will be tied to Windows 8 and there will be brand confusion for some time while consumers try and sort out what’s what.

In addition, there will be confusion from all the stories from consumers who feel screwed because they bought a phone in the summer that was replaced in the fall. Not a fun story (no matter how accurate or defensible you think that action was).

Right around then, the iPhone 5 will be released and the press will effectively help it sell at record levels (assuming there is no anomaly with the phone).

Nobody will care about the new Lumias because Apple (as usual) will just tell a better story.

Android will also have competitive units and between those 2 vendors, there will be very little room for a number 3.

There are several possbilities at that point.

  • Windows Phone 8 on the Lumia could be an amazing rip roaring success (hard to see but possible)
  • At some point in the future, Microsoft could buy Nokia (unlikely)
  • At some point in the future, Microsoft could make their own phones with Nokia (as opposed to the Lumia)
  • At some point in the future, Microsoft could make their own phones with someone else
  • At some point in the future, Microsoft could just invest and make their own phones

Only one of these options sees Nokia walking away happy and that’s a slim chance at best.

Bottom line is, this isn’t rocket science. The train is headed firmly off the tracks re: Windows Phone and the Nokia Lumia.

Both Microsoft and Nokia each need to have a plan B in the works for their companies otherwise this won’t end well.

Windows Phone 8 plays an integral part of the overall Microsoft vision.

I think it deserves better than this..

That’s what I think people.

What do you say?

Please Leave Your Comments Below...

  • Bane

    I think this is BS. Nokia is the best and I love Windows Phone!!

    • http://www.windows8update.com/ Onuora Amobi

      I appreciate your feedback…

    • WillyThePooh

      I am also thinking to get Win8 phone. I like the live tiles more than the dead icons.

  • Philip Fasson

    You have GREAT points. I think that this partnership was doomed from day 1. I told anyone who would listen that it just made no sense…

    • http://www.windows8update.com/ Onuora Amobi

      Thanks for your feedback… 🙂

  • Robert Stivaletti

    Fire Ballmer. Now.

  • Willem

    Oh dear … i don’t want to be an evangelist for either Microsoft or Nokia … but this post sounds like yiour average conspiracy theory. If, this and if that and if, if, if … then this, that and that. Selectively choosing facts and then spinning them all in the same direction is not good analysis. It’s just spin.

    You can of course get the same group of facts and spin them another way. And get a totally different story coming out the end. Same facts, different spin.

    Good analysis looks at all aspects and analyses them all and comes to a conclusion. I don’t see that here.

    I don’t see any inclusion of the effect of tablets might be. I don’t see any thought about the effect of the possible large scale uptake of Windows 8 by enterprise will be … and its likely associated increase in use of the closely linked Windows phones/ tablets. I don’t see any real discussion of the effect of the next generation of phones from Nokia may have (which may or may not be branded Lumia). From a consumer’s perspective (as opposed to an enterprise perspective) a ‘WOW’ factor is important. A classy Nokia WP8 phone with the Pureview camera could just provide that ‘WOW’ factor, and a clear differentiation from anything else. But no discussion about that.

    So Onuora, I’m not seeing this article as good analysis. Just conspiracy theory level spin. Sorry, I don’t want to be critical, but there it is.

    • http://www.windows8update.com/ Onuora Amobi

      Hard to be conspiracy when the facts come from the company (NOK) themselves. They sold what they sold and it is what it is.

      Of course there are different permutations and combinations of other possibilities but (TO ME) I have outlined the most likely outcomes based on what we know today.

      If you have a more credible hypothesis based on what we KNOW, I would love to hear it.

      🙂

      • Willem

        It’s not the facts I am disputing, but what you’ve done with them. The selective choice of facts, which give a skewed picture, and then spinning the ‘ifs’ all in one direction skews the picture even more.

        I don’t have time to do a full analysis of the situation – that’s why I read blogs like yours. And generally you write useful stuff. But because I read your blog to get digested information I need to be able to rely on it. I do know enough about how to analyse a situation to know when it hasn’t been done properly.

        What I need is good analysis. I don’t necessarily have to agree with your conclusions because we all see things differently. But I do need you to do a good analysis, considering all the various aspects of the topic you are writing on, giving a fair reflection of the reality of the situation. Once that is properly done you can draw your own conclusions, as I will.

        That is what I look for and why I bother to read your blog. If a blog consistently spins then I simply vote with my feet …

        • http://www.windows8update.com/ Onuora Amobi

          It’s a good point. Balance is important and I strive for balance all the time believe it or not. In this situation though, the facts have unraveled in a very particular manner.

          It’s just hard to ignore the sequence of events.

          Better put, on balance, it’s harder to come up with a more optimistic scenario for the company without just being plain unrealistic.

          Remember, I wrote this piece as well http://www.windows8update.com/2012/05/14/24-hours-in-an-all-microsoft-world/ where I largely think the vision is a good one…

          • Unenchanted Follower

            But in general my friend, balance is something your blog is constantly lacking. You either state the news with no opinion (which is good) or attempt to bias everything with your negative opinions and the spinning of facts to your liking (which funny enough, it has become a tendency in your blog and it is never the other way around).
            The blog’s name should be changed to “windows8updates&let’strashit.com”… I’ve been following you for quite some time and it is getting really tiring; depending on the day, I might find it hilarious because of how ridiculous the trashing is and how repetitive it gets, or I feel it really offensive because of the constant lack of objectivity.
            The only reason I continue reading it is because of those posts where you just state news and there is NO opinion from your part… You should keep those and honour the title of the blog…
            Just saying….

    • tbone

      “possible large scale uptake of Windows 8 by enterprise will be”

      There will be no such thing as a large scale uptake of Windows 8 by either enterprise or consumers. So much for YOUR spin.

      • Willem

        tbone .. you’re either a troll or you have an insight into the minds of enterprises around the world that nobody else has. You cannot possibly know if your statement is true.

  • bearded_no!

    I am an evangelist and disciple of Windows Phone. I don’t know, I think many analysts focus too much on numbers and are not taking into account the market. Currently, Windows Phone has ONE, one major provider that is dedicated to selling Windows Phone, and that is att. Many people have either att or Verizon, where Verizon is the larger and better and more recommended than the latter. The Nokia Lumia 900 only came out in April, and up till then, there wasn’t an effective advertising campaign for Windows Phone in general.
    I believe for sure that Windows Phone 8 will change that.
    It will boil down to the fact that there is a viable third party platform that is different, and is great, has much praise, has Windows 8 like capabilities, and will be used by carriers to bundle potentially an LTE enabled Windows RT tablet with a Windows Phone on a shared data plan. Windows Phone 8 will support the high end hardware that android is dominating in, and even more than android with a theoretical 64 processor core capability. Nokia is rumored to launch a Lumia PureView Windows Phone 8 on Verizon as well (will probably be in line for that bad boy).
    So, that means for the retailers that work on commission is that there is a different phone, a higher end phone, that isn’t an android or iphone. That also means that they can get commission for selling bundled Windows 8 tablets and Phones with a shared data plan. That also means for the consumer is a great phone that tried and tested and is ready for the big time as well as apps that go hand in hand from Windows 8 to Windows Phone 8.
    This means for Nokia is that it sucks that their Lumia phones are out of date. But, in any business where you want to break into a market, it takes money to make money. You will lose money before you gain profits. Windows Phone 7 was that loss, Windows Phone 8 is the profit.

  • 123321

    i think Microsoft and Nokia are going to have a very big advertisment strategy for this fall. and if that is going to be seen on every tv on every paper and stuff like that, people will get to know Windows 8 and Windows phone 8 or they get just curious and go to the shops and try it out.

    • http://www.windows8update.com/ Onuora Amobi

      Thats a great point. If advertising is good, there may be a fighting chance…

  • 123321

    i think the general user acceptation will be 50/50.
    one half will adopt Windows 8 and will love it. and the other half will hate it an stay with win7 and miss a lot of the great possibilities of win8

    • http://www.facebook.com/ruisilva450 Rui Silva

      This isn’t about Win8 but Windows Phone 8. It’s connected but not the same

  • http://twitter.com/AppsWP7 WP7 App ideas

    Living in the Netherlands, I am used to view the mobile phone market from a world perspective. That leads to another very interesting observation. The numer of Nokia units sold is 83.7 Million, in 2012Q2 alone. The US share is 0.6 Million, or (0.6/83.7=) 0.7%! So I believe these figures contain another message: the US mobile phone market is a late adapter. What do you think?

    • http://www.windows8update.com/ Onuora Amobi

      Maybe or maybe the US Mrket doesn’t really like Nokia products and is not impressed by Windows Phone…

    • unenchanted follower

      Exactly.. Thank you very much… and Onura. even if what you say is true, to Nokia perhaps, in the large scheme of things, they might not care that much about the American market and if they like the phones or not. I mean, if we want to speculate, let’s speculate in both directions….

  • http://www.facebook.com/ben.symington Ben Symington

    Well, what a
    story, I agree with Willem, but on the other hand, I am a MSFT evangelist, and I
    do tell everyone that will listen that Apple is junk (having used it and hated
    it), still out on Android, and the MSFT OS on the phones seems to do everything
    I want in a useful manner.

    The problem
    is, is that there almost always seems to be MSFT bashing, in various forms, on
    this site. On one hand its praise, on the next a seemingly hidden agenda of
    bashing, almost as if there is Apple bias.

    Now I am
    opinionated, I never deny it, but I do enjoy seeing difference in opinions even
    if I don’t like it. What I don’t like is trend towards one thing or the other
    and defending it.

    Anyways, I’m
    from South Africa and love the Lumia and OS as compared to others that I have
    used, my second best phone was the Blackberry, just a pity it got that
    curveball on their tech centre’s that messed up their reputation. But one’s
    fall leads another to take the lead and so business goes on.

    Lets rather
    see what results are and not speculate?

  • http://www.facebook.com/unethical.hacker Adie Bhatt

    Nokia should work on its Meego OS parallel with WP also it has options to switch to Android and Firefox OS

  • rustyknight17

    test

  • rustyknight17

    Mr Amobi , u raise great points ! Excellent article and right on target !
    I’ve always said WP has potential , if MS and Nokia play their cards right . And before I get to the flip side of this coin so to speak , I was a dedicated WM fan .
    But let’s be honest here . Wp is immature as yet ;it takes 3years to work enough bugs out and enough features to make a new Os reliable and useful .WP’s not quite there yet.
    Nor does it help WP8 that current WP phones r not upfadeable . And how much 7.8 will hekp isn’t yet clear .And WP8’s much higher HW requirements r going to hurt it in the midrange.Then there r the competitors , the Iphone 5 will proably beat WP8 to market . Nor does it help that WP hasn’t taken off yet . Only in Finlandhas it reached 10% . Nor has it done well in China or in emerging markets due to a lack of features it needs to succeed there.
    A other problem here r the Lumias . They r the face of WP , and the flagship models , the 800 and 900 r both based on the iconic design of the Nokia N9 . Trouble is the n9 is a much superior smartphone in terms of features , capabilities and intuitiveness , ease of use . That’s going to hurt both MS and Nokia in countries where the N9 s did well . Nor does it help that Nokia has dione several very stupid things , such as the notorious memo . Since as I said earlier , xNokia’s Lumias r the face of WP , this hurts MS ansd WP both .
    So I thinked the partnership is doomed and maybe WP as well , unless WP8 is a game changer . Given the strikes against it , I don’t see that happening , at best WP will be moderatelt sucessful at best , which doewn’t help Nokia …

  • http://www.facebook.com/people/Brian-Dotson/33614998 Brian Dotson

    One thing that will help users that already bought the Lumia 900 is that there will be a Windows Mobile 7.8 which will provide the “feel” of the Windows 8 Mobile platform.

  • Cocco_Bill

    Lumia sales in North America (not just in the USA) in Q2 were only 330 000 units. This information came from Nokia’s CFO in a conference call:

    “Of the 600k handsets sold over the last four months, 330,000 were of the
    Lumia variety. Nokia CFO, Timo Ihamuotila, broke down the numbers
    further during the companies financial conference call”

    http://techcrunch.com/2012/07/19/nokia-sold-just-600k-handsets-in-north-america-during-the-last-quarter/

  • rustyknight17

    What large scale enterprise adoption ? WP8 is doing well at the moment but lack of credible challengers ATM may be contributing to that …
    WP8 is better but its requirements r higher , which won`t endear it in emerging markets . We`ll see what 13 brings , that`ll be the real test for WP8 !

  • rustyknight17

    but I CAN , THIS IS 5 months later lol