Nokia Corporation (NYSE:NOK) is losing a battle on both the fronts in the smartphone segment; premium and low-end. In the premium segment, as per a report from Bank of America Corp (NYSE:BAC), it lacks a ‘hero’ product, and even its Windows Phone (WP) units are unable to compete with the offerings from Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94). The report expects a positive cash flow in 2014, only if the company is able to sell around 55 million Windows Phone handsets “Our expectations of positive cash flow generation in 2014 hinge upon Nokia selling 55mn Windows Phone handsets (a quarterly run rate of c14mn), a large step up from sales of 4mn in Q2 2012”.
smartphone OS Share

In the low-end market for smartphones, the Finnish company is facing severe competition from ‘white box vendors’, who are offering superior hardware specifications, at a lower price. The report considers Android to be a major threat in the segment, and expects the lower price offerings “take market share away from both Lumia (Windows Phone) and Asha (S40 – Nokia’s ‘smartphone-lite’)”.

feature phone market

In the feature phone segment, the report says, we “believe that Nokia has taken market share”, as currently this accounts for almost 90 percent of its handset volumes and contributes around 60 percent to the revenue, and above all, these are “also profitable for Nokia, unlike smartphones”. Unlike Nokia, other major players in the feature handset segment, like Samsung have exited the segment to focus on smartphones. The market for feature phones has been shrinking by almost 20 percent to 30 percent per year. The sales for feature phone are mainly driven by new subscribers in emerging markets, but even the growth rate of new subscribers is getting slowed in the emerging market, which will eventually lead to a fall in the sales of the feature phones. So, Nokia Corporation (NYSE:NOK) will have to come up with some plans to move with the “rapid pace of technological evolution which means that eventually all phones will be ‘smart’”.

Nokia Corporation (NYSE:NOK) has lost its cost competiveness, which it used to enjoy, and regaining the same looks difficult in the near term, as “Nokia has outsourced most of its handset supply chain and is reliant on buying standardized components from competitors”. With its current plight, Nokia is now “just one of a number of handset vendors producing WP8 phones, according to Microsoft Corporation (NASDAQ:MSFT)-defined minimum hardware specifications”.

Another problem for Nokia Corporation (NYSE:NOK) is the Nokia Siemens Networks (NSN); given the difficulty that Huawei Technology Co Ltd (SHE:002502) and ZTE Corporation (SHE:000063), would likely have in obtaining any US deal approval. The report feels that given the difficulty for NSN in “mid-restructuring, and the weak capex outlook for 2013”, it will be difficult for the handset maker to “attract many immediate buyers for NSN either at the moment”.