Nokia Corporation (NYSE:NOK) has not been among the most successful of cell phone manufacturers for many years. The reasons behind the company’s fall from grace are well known. The firm failed to compete with a decent smart phone product, and lost momentum early in the game. There is always the possibility, however, that Nokia could be in for a comeback.
The Finnish handset maker has been impressing the critical press in recent months, with the launch of its Windows Phone 7.5 phones, and the upcoming launch of its Windows Phone 8 models, like the Lumia 920, but has managed to make little sales or revenue headway.
The company is still in for a fight, but it is a fight it can do well in. That is the vein of a recent report from Nomura research. The report is not so optimistic about the future of Taiwan based handset maker HTC Corp (TPE:2498).
Android is free software. Any company can download it and modify it for use with any device. That was one of the characteristics that made the Google Inc (NASDAQ:GOOG) so popular in the first place. It could be the one that leads to the downfall of HTC.
Microsoft Corporation (NASDAQ:MSFT) has never been known to license its best products for free. The company likes to keep control of its userbase and maintain revenue flows from purchases of software licenses. Nokia Corporation (NYSE:NOK) is getting a free ride this time, because Microsoft needs quality phones on launch day.
In China, several companies are taking advantage of Android’s ubiquitous liberty. Companies produce “white box” or unbranded phones, which usually have inferior specs, for a lot less than the major Android brands are charging. The era of the super cheap smart phone is upon us, and it will carry a few heads off of the battle field.
The first of these will be, as expected, the feature phone market. the segment has been dying for years now, and though Nokia Corporation (NYSE:NOK) feels that pain, it will not be fatal. The rate of cannibalization of feature phones by smart phones is projected by Nomura to reduce purchase of lower end phones by as much as 24%. Nokia will wince if, and when that contraction appears.
The second victim of the cheap smart phone will, according to Nomura Research, be mid range android models. Premium Android phones, in the eyes of many consumers, are limited to offerings from Samsung and those released under the Google Inc (NASDAQ:GOOG) Nexus line. HTC is vulnerable.
The company does indeed have handsets that users love, and critics laud, but the simple fact is that they don’t sell like the Samsung Galaxy or the Apple Inc (NASDAQ:AAPL) iPhone. HTC still relies on profits from the lower end smart phones in order to compete. If it finds no way to reverse the trend, it could end in disaster for the company.
HTC could follow in the steps of Nokia Corporation (NASDAQ:NOK), and move its premium handset over to the Windows Phone 8 platform, slowly exiting the market. Microsoft Corporation is sure to gouge license fees in that case.
A second option would be a decision by Google Inc (NASDAQ:GOOG) to reduce the amount of low cost smart phones using Android. This would see the company losing good will. Many still see Google Inc as a very open company, despite privacy issues. An end to free Android for all could end the era of a benign Google Inc (NASDAQ:GOOG).
Neither of these options seems entirely justifiable from the HTC point of view. The company might need to release a new handset, on either a Google Inc or Microsoft Corporation (NASDAQ:MSFT) system, that surprises the market and finally gives the company a premium phone.
If not, the firm’s sales might remain steady in the west, where low cost cheaply made phones are often difficult to come by, but its growth in Asia Pacific, the region most manufacturers see as the future, will lag behind competitors.
Nokia Corporation (NYSE:NOK) does not have an easy road either, but it does have a differentiated product with a unique style.
HTC Corp (TPE:2498) consumers can see little cosmetically different between the firm’s phones and the low cost alternatives. Both run Android.
Google may not care about the plight of HTC Corp (TPE:2498), it may be happy to allow the firm to slide into obscurity, while Samsung continues its role in the premium market. Nokia Corporation (NYSE:NOK) will be looking for a seat at that table too. The firm has the system on its side, now its up to the markets.
If the projections given by Nomura are right, HTC Corp (TPE:2498) could simply fade away. The firm would not even be allowed to whimper before it fell into the threshing machine that is the modern smart phone market. The company could be out of sight, just as Nokia Corporation (NYSE:NOK) begins to shine its brightest.