Summary
The dichotomy in the wireless industry is Nokia reporting its first loss this decade, and Google recording its highest profit ever and claiming that the high growth business is mobile search.
Analysis
After a quarterly report of both profit and sales declining, Nokia decisively announced a restructuring aimed profitable growth. Nokia made three strategic moves; 1) Transferred its CFO to manage lower-end phones; 2) Assigned a person with brand marketing experience to smartphones; 3) Recruited an applications person for mobile PCs. Nokia is reiterating what it stated in the previous quarter’s results that margins would not be sacrificed for market share. Cheaper entry-level phones are not a marketing venture but instead a financial business for a CFO to control costs. The model is to plot the sunk costs for manufacturing against the replacement cycle to sell higher margin upgrades. Nokia’s reassignment of a manager to smartphones with Reebok and Procter & Gamble experience has the potential to creatively market mobile services. And the newly recruited Apple manager brings fresh innovation for mobile apps.
Nokia forecasted industry shipments for phones will fall 7% for the 2009 year. Sony Ericsson reiterated the slowness with only a 2% improvement in sequential quarterly shipments. In comparison, Google’s CEO explained the record profits and fastest growth for this year with the comment about a 30% growth in mobile searches quarter-over-quarter. When Google announced the e-reader service, it ruled out making a device. As Nokia reorganizes, the future quarterly reports will probably be less about device shipments and more about services revenue. And the services test could be if Motorola can turn around with the DROID model on Verizon.
Gregg Kail, MBA consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
