TRANSITION YEAR 2012
If Q4 of 2011 ends with Nokia selling 11 million smartphones per quarter, how will 2012 go? Well, we have a transition of one smartphone OS to another. There is really no model for us to compare. But let's be 'provocative' and offer a 'best case'. What is the fastest any - any - smartphone OS has ever gone from zero sales to 11 million units per quarter? That was not Microsoft's Windows Phone 7. That was not Microsoft's Windows Mobile. It is not Blackberry, it is not Palm, it is not Samsung's bada either. And it is not Apple's iPhone. The fastest OS ever to ramp up from zero to 11 million was... Google's Android, which did it in four quarters.Even if these phones sell in millions, their ramp-up cannot beat one achieved by Apple or Google. Or can it?
Please recognize this is quite a huge leap of faith, but let's say, Microsoft and Nokia manage to match the fastest ramp-up ever (ignoring all the bad will that Microsoft has now been generating with its under-performing Windows Phone OS, which after all, launched in 2010 and still hasn't reached even 2% market share and lingers in 7th place among smartphone operating systems behind even Samsung's bada and Microsoft's own, older OS, Windows Mobile 6.5). Let's say Nokia-Microsoft based Windows Phone handsets ramp up from zero at start of Q4 of 2011, to 11 million sold by Q3 of 2011. And to keep the math 'easy' let's say the Nokia Symbian ramp-down will exactly mirror that increase, so for every million lost in Symbian sales, Microsoft Windows Phone exactly matches that decline, picking up every lost Symbian sales. Thus, we get the following pattern for the first 12 months of Nokia Microsoft Windows Phone + Symbian combined sales:
- 4Q 2011 - 11 million
- 1Q 2012 - 11 million
- 2Q 2012 - 11 million
- 3Q 2012 - 11 million
We can also give a rough model of a linear transition (only as a guide) so if Symbian starts with 10 million to 1 million at Q4 of 2012, and reverses that by Q3 of 2012, we'd get this pattern:
- Q4 2011 - 11 million - 1 million WP7 + 10 million Symbian
- Q1 2012 - 11 million - 4 million WP7 + 7 million Symbian
- Q2 2012 - 11 million - 7 million WP7 + 4 million Symbian
- Q3 2012 - 11 million - 10 million WP7 + 1 million Symbian
CANNOT BE BETTER
Note, this is taking the fastest ramp-up of any OS ever, by Android, when HTC was hot, when Samsung was hot, when Motorola was in full fight-back mode etc. It was a concerted effort by all the major brands in the Android camp - and was further powered by Google's own hype and excitement around the 'Nexus One' smartphone which Google labeled a 'superphone'. While that Nexus One didn't end up being the 'iPhone killer' that Google had hoped, the hype around Nexus One helped HTC, Samsung etc sell many more Android phones.
Please do not for one second think Nokia and Microsoft can do better than this. We use the most successful ramp-up ever, and even with that, we find that Microsoft WP7 sales only match up the ramp-down of Nokia Symbian sales (where Nokia's original 150 million commitment from February 2011, suggested a linear decline to exactly that time. Nokia should have ended Symbian production in summer of 2012).
Note on CEO Stephen Elop 'promise' of 150 Million more Symbian phones. This model pushes Symbian one full quarter FURTHER than all analysts concluded by Elop's February 11 announcement. And how many total Symbian smartphones will Nokia end up producing in this best case scenario before switching to Microsoft? 62 Million. Yes. Only 62 million! Nokia CEO Stephen Elop is lying to us and the Symbian developer community by a factor of 59% ! He is going to under-deliver on his promise by 6 out of 10 promised Symbian phones. There will never be 150 million Symbian phones with Stephen Elop in charge with his mad Microsoft strategy.
62 million - is the BEST CASE scenario! Any more that he'd now push the utterly undesirable Symbian phones for 2012 and 2013, would only hurt Microsoft WP7 phone sales - AND hurt Nokia profitability as long as there exists a Nokia Microsoft based phone out there, nobody wants Symbian phones, no matter how good Symbian S^3 or its latest Anna version or any update might be. 62 Million is the new 150 Million. Be prepared for that number. Stephen Elop is obviously creating his own reality distortion field - the negative one.
Note also on MeeGo, while I am on it. As of now, Nokia is saying that it will not release MeeGo into broad distribution and will not expand the sales of MeeGo beyond the one premium phone model. So the model here assumes no significant MeeGo sales (in the several millions) and what perhaps one or two million total MeeGo sales might be, will be included in Symbian sales).
EMPIRE STRIKES BACK: MICROSOFT GROWTH POTENTIAL?
So, now we know that Nokia Microsoft WP7 smartphones are in transition until about the end of Q3 of 2012. And the first quarter of true Micro-Kia/Noki-Soft comeback will not start until Christmas Quarter of 2012. Yes. Please note first, the pain will continue absolutely definitely until not Christmas Quarter of this year 2011 - no, the pain will continue on this strategy until Christmas Quarter of 2012. And then let's see how we can project growth for Nokia using the Microsoft WP7 operating system for its smartphones.
Where can we find a good model to project. There are not many smartphone manufacturers who have grown bigger than 11 million and kept growing for several quarters after that. We only have two - Blackberry and Apple. So let's again take the very best out there, Apple's iPhone. After Apple had passed 11 million sales, at that level, how fast has Apple been growing since? This is the world's biggest smartphone maker now, the company that toppled Nokia. It is certainly an 'optimistic' scenario - most would say that under no circumstances can Nokia, with or without Microsoft, manage as good a market reception as Apple's iPhone has in the recent past. But let's use this as the model. This is clearly the topmost optimistic scenario. Apple's iPhone has been growing at a quarterly rate of 13%. And look at what we get:
- 3Q 2012 - 11.0 million Nokia Microsoft WP7 smartphone sales
- 4Q 2012 - 12.4 million Nokia Microsoft WP7 smartphone sales
- 1Q 2013 - 14.0 million Nokia Microsoft WP7 smartphone sales
- 2Q 2013 - 15.9 million Nokia Microsoft WP7 smartphone sales
- 3Q 2013 - 17.9 million Nokia Microsoft WP7 smartphone sales
- 4Q 2013 - 20.3 million Nokia Microsoft WP7 smartphone sales
We're looking at maximum of 44.4 million in 2012 and 68.1 million WP7 smartphones. That is less smartphones than Nokia shipped five years ago.
THAT IS THE BEST CASE 2012 + THE BEST CASE 2013
So taking the very best case of 2012, using the best ramp-up ever, and then using the best case of growth in mass market scale, we get Nokia's Microsoft Windows Phone 7 based smartphones - the very best case scenario - to hit 20.3 million smartphones not at the end of 2011, not at the end of 2012, but the end of 2013. By that time, Nokia's smartphone market share will be at... 8%.
And for those who say 'but other Microsoft manufacturers' yes - how excited do you think they will be to see Microsoft prioritizing Nokia ahead of them? That Microsoft actually paid 'billions' to Nokia to bring it to the WP7 family? We already now see WP7 manufacturers diminishing WP7 production and prioritizing other operating systems (Samsung does its own bada OS, HTC reducing WP7 phones in favor of Android, same for LG etc). Maybe Microsoft can get 2% of phones made by other manufacturers, so it might see a total MS market share in smartphones of 8% by Q4 of 2012 and as 'high' as 10% by Q4 of 2013.
Note that Microsoft has earlier had 12% market share in smartphones as recently as 2006 (before the iPhone obviously) so even after all that, Microsoft would be a bit-player at best - smaller than Android, smaller than the iPhone, smaller than Samsung's bada, and likely also smaller than Blackberry. It's only bigger than HP/Palm and their webOS. It's possible even at 10% that Microsoft would be smaller than MeeGo even without Nokia's support of MeeGo, as there are several big smartphone makers - and China Mobile the world's biggest carrier/mobile operator - committed to MeeGo. So any hopes of 'the third ecosystem' using Microsoft is a fantasy. Under the absolute best-case scenario, Microsoft might just break 10% two-and-a-half years from now. Best case. And trust me, that won't happen. It will be worse than that. Microsoft will linger in the single digits as a has-been in smartphones, once the second biggest smartphone platform, whose manufacturers and suppliers all soured on Microsoft as the Evil Empire and one after another, abandoned Microsoft to its own devices. How long will Nokia punish itself on this path to ruin? I trust Nokia management is smart enough to jump off the Microsoft bandwagon as soon as they can.
Also remember, there were several analyst houses who promised that Microsoft based smartphones could propel Nokia back to about 20% market share (or even better than that) and achieve a 'third ecosystem' level of market share. Those projections were made before these Q2 results were known. Those analyst houses will look supremely silly if they dare repeat those projections now. It is totally inconceivable that Microsoft-Nokia would somehow achieve 20% in 2012 - or even by 2013. They would have to do literally TWICE as well as Android at its best, and then twice as well as Apple iPhone at its best. With Microsoft? The company that entered the smartphone market by destroying Sendo who carried the brunt of development on the original Windows Mobile? With Steve 'I love to scr*w any partner' Ballmer in charge? With one reseller boycott already hurting Nokia and another even bigger reseller boycott hitting Microsoft?
What planet would the any self-respecting analyst live on, to think now after these Q2 results, that Microsoft and Nokia can recover to 20% market share. Nokia already destroyed 31% of its market share now, in just 3 months! The 20% vision is a sheer fantasy and the analyst houses who talked of such rates will quietly downgrade their projections to be closer to where I project Nokia-Microsoft now. It will be embarrassing to them, so they will do it in small stages, but expect each of them to issue updates that show lower forecasts for this alliance, every time...
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