Google Android Triumphs at Nokia's Expense - BusinessWeek

Google Android Triumphs at Nokia's Expense

Posted by: Andy Reinhardt on January 31, 2011

Competition from the Apple iPhone has gotten most of the blame for Nokia’s struggle in the past few years to maintain relevance and market share in smartphones. But the Android operating system backed by Google has emerged as a greater long term threat—and perhaps opportunity— for Nokia.

Figures released Jan. 31 by market researcher Canalys show that in the fourth quarter of 2010, phones built on Android outsold those using Nokia’s Symbian operating system for the first time ever, grabbing almost 33 percent of the market, up from 8.7 percent a year earlier. Nokia, at No. 2, commanded 31 percent share, down from more than 44 percent in the last quarter of 2009. Apple’s share edged down slightly, to 16 percent, in a market that nearly doubled overall, to 101.2 million units, according to Canalys.

News of Android’s smartphone triumph came on top of a release the same day from researcher Strategy Analytics charting the rise of Google’s operating system in tablet computers. In the fourth quarter of 2010 the Apple iPad remained the clear No. 1, with more 75 percent market share, but devices built on Android surged to nearly 22 percent of the market, up from 2.3 percent in the quarter before.

Android, which is based on open-source software, has attracted big name handset makers (including Motorola, Samsung, and HTC) and has racked up thousands of developers and downloadable apps. Some of Android’s appeal is due to its low cost and openness, but it also offers a rich set of tools and capabilities that permit low-prices devices rivaling the iPhone.

Meanwhile, Nokia continues to decline in smartphones. On Jan. 27, the same day the Finnish giant reported its fourth-quarter and 2010 results, Strategy Analytics issued a study estimating that Nokia’s smartphone market share fell to 30 percent in the fourth quarter, down from 39 percent a year earlier. At the same time, Nokia’s average selling price for smartphones fell 17 percent, reflecting price pressure and a shift to mid-tier devices, Strategy Analytics said. “Nokia is still the world’s largest smartphone manufacturer, selling 100 million units in 2010, but it urgently needs to deliver an enhanced…portfolio of touchscreen models to strike back,” said research analyst Neil Mawston in the report.

Nokia’s Jan. 27 earnings release, which showed a 4 percent rise in 2010 revenues but declining profits and margins, prompted a sharp sell-off in its shares and raised anew questions about the company’s strategy. A growing chorus of analysts wonder whether Nokia may be forced to swallow its pride and incorporate Android into its product roadmap.

In a client briefing issued Jan. 31, brokerage Nomura noted that 2011 could be a record year for smartphones, especially as the market shifts to mid-tier and low-end models for markets such as China. The tipping point, according to Nomura, will be Android phones priced at $150 or below. “Nokia does have smartphones at this price point, but the user experience remains so disappointing that we are not confident it will be able to participate in this market against Android,” Nomura says.

The answer could come soon. Nokia has scheduled a strategy briefing day for Feb. 11 at which it could announce support for a new software environment. CEO Stephen Elop said during the company’s Jan. 27 earnings call that Nokia needed to “build, catalyze, and/or join a competitive ecosystem,” which some analysts took as a sign of the company’s willingness to consider alternatives to its homegrown software. Nokia won’t likely abandon Symbian or the advanced MeeGo platform it’s jointly developing with Intel. But if Android keeps gaining market momentum, Elop may decide it’s wiser to join ‘em than fight ‘em.