This Has Got to Be Depressing for Nokia


After an often contentious annual shareholders' meeting last week, much of it due to Nokia's decision to hitch its wagon to Microsoft's new Windows phone OS, the last thing shareholdersneeded was bad news. Unfortunately, that's just what they got when Gartner issued its final Q1 2013 global phone sales results. A decline in overall mobile phone market share isn't surprising as Nokia makes the transition to Windows from its Symbian OS. What is surprising, and slightly depressing, is the direction Nokia is heading in worldwide smartphone market share.

The envelope, please
Samsung remains the leader in both feature and smartphone sales across the globe, growing 13% in total, and up 3.2 percentage points over the year-ago quarter. In the race for smartphone dominance with Apple , Samsung is winning the worldwide smartphone contest, and the lead is growing. Apple's share of the smartphone pie dropped to 18.2% in Q1, from 22.5% in the same period last year. And with no new phones expected for at least a quarter or two, and difficulties in securing subsidy deals with Asian wireless providers, things could get worse before they get better for Apple.

Unfortunately for Nokia, things are already worse in terms of worldwide market share, and get particularly ugly when feature phone sales are removed from the mix. With just over 63 million mobile phones sold in Q1, Nokia still holds the second spot behind Samsung. But with only 14.8% of the mobile phone market, down from last year's 19.7%, Nokia appears to be losing its hold on second place. The culprit? While Lumia phones running Windows OS are selling -- 5.1 million last quarter -- that's not enough to keep pace with overall growth in the exploding smartphone market.

As per Gartner's data, Nokia dropped to No. 10 on the global smartphone depth chart in Q1, down from No. 8 just one quarter ago. Particularly distressing is that Nokia's declining smartphone market share comes after securing a sweet subsidy deal with China Mobile, the largest wireless carrier in the world. Now factor in the growth of the Chinese smartphone market as a whole, and the picture really gets depressing.

Nokia's problem in China is largely due to the strides Chinese manufacturers are making. Regional smartphone manufacturers now account for 29% of the Chinese market, compared to just 13.2% in Q1 of 2012.

A glimmer of hope
With four new phones, including two Lumia models introduced in the last week alone, Nokia shareholders have reason for hope. The Lumia 928 opens the door to Verizon customers and could provide a real boost. Another upside, albeit a minimal one at this point, is Microsoft's Windows phone OS is (slowly) gaining some traction. Windows phone OS market share is now 2.9%, up significantly from last year's 1.9%. Still a small piece of the overall OS pie, but with Nokia's commanding position in Windows phone sales, any gain for Microsoft's OS is a positive for Nokia.

As the Gartner study indicates, and CEO Stephen Elop reiterated at last week's shareholder meeting, the success of Nokia is riding on Lumia and Microsoft Windows phone OS. Feature phone sales in burgeoning markets are nice and certainly offer potential, but the importance of Nokia's Lumia models as consumers shift to smartphones cannot be overstated. Unfortunately, it doesn't appear Nokia is making the strides many of us had hoped for, and the clock's ticking.

Nokia's been struggling in a world of Apple, Samsung, and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.

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Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple, China Mobile, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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