Can Nokia bite back?

While Apple has the lion's share of the mobile phone market, Nokia may have a few advantages to help it claw back sales. But will it be enough to reverse its fortunes?

It may be some time before Nokia can reap the benefits of its strategy to sell low-end smartphones to countries such as China and India.

Nokia's recent profits warning and its losing battle against Apple in the smartphone market have scared away many investors. But there is new evidence that the Finnish phonemaker is far from throwing in the towel. It has developed new software that analysts believe have some advantages over the Apple iPhone. It is also gearing up to take a new generation of low-priced smartphones to the world's booming developing markets, where Apple is notoriously weak.

Until the advent of competition from the Apple iPhone and mobile phones running Google's Android software, Nokia had been seen as the world's leading mobile phone maker since the 1990s. Nokia chairman and former chief executive Jorma Ollila's turnaround of a company that had formerly made rubber overshoes was seen by Finland as nothing less than a miracle coming in the wake of the country's economic collapse following the break-up of its main trad ing partner, the Soviet Union.

For years, Nokia shares accounted for the major part of the overall value of companies listed on the Helsinki stock exchange. But Nokia was slow to supply the smartphone market with what it wanted. "Nokia did trailblaze the smartphone market, but lost its lead. While Nokia provided a lot of smartphone features and services well before iPhone or Android existed, it struggled with things like user interface and attracting developers, and it took it too long to update its operating system," says Tim Renowden, a devices and platforms analyst with Ovum.

But with a range of what it hopes will be groundbreaking new handsets, starting with the N8 smartphone, Nokia believes it can regain some of its lost ground. "Soon, we will introduce our most advanced smartphone - the Nokia N8 - that enables people to create amazing content, connect to their favourite social networks and be entertained with the latest Web TV programmes and Ovi Store apps," says a Nokia spokesman.

Nokia has also developed new software in the form of the MeeGo operating system in partnership with the chipmaker Intel. "MeeGo is focused on the next generation of mobile computing devices across multiple device categories, including netbooks, tablets, TVs and more. Mobile devices based on MeeGo are poised to offer a connected experience combined with powerful performance," says Nokia. Nokia also has an edge over its main competitors in what are expected to be the future boom markets of the developing world and hopes to use the next version of its Symbian operating system to power low-cost smartphones aimed at these markets, something Apple's high-end business model would not allow.

"Although Nokia has lost its mindshare at the high end, Nokia has unrivalled experience making phones and has an advantage over other manufacturers in the size and sophistication of its manufacturing operations," says Mr Renowden. "This gives Nokia a big advantage in the developing world. Nokia is very important in India, Africa and China." Richard Windsor, an analyst at Nomura, believes that, while Nokia has made some disastrous errors in recent years, the market is being unduly bleak regarding its future performance.

"Long-term investors may want to look at the current sell-off as an entry opportunity while remaining aware that newsflow is unlikely to materially improve in 2010," says Mr Windsor. "Newsflow on new products may start to improve from September, on the launch of the N8, the announcement of N8 variants and the likely announcement of a new MeeGo phone for the high end smartphone segment. These devices may start to slowly improve confidence in Nokia's ability to stage some sort of recovery."

According to Mr Renowden: "Although Nokia has had serious problems, I would generally agree that the market may be writing Nokia off too soon, given that Nokia has invested heavily into bringing its software up to date." MeeGo could also give Nokia the edge over Apple as it is a truly open-source operating system that enables developers to write whatever applications they please. With Apple being perceived as increasingly authoritarian by younger consumers in areas such as copyright protection for music and film content, this could represent a huge advantage for Nokia.

Analysts are, however, warning investors against an expected swift turnaround in Nokia's fortunes. It will be the end of 2011 at the earliest before Nokia's new battle plan will start to produce real market victories. "To be clear, we do not recommend any investors buy Nokia in order to generate a material return by end 2010; in fact, we continue to have concerns over the first half of 2011," says Mr Windsor.

It will be even longer before Nokia will be able to reap the benefits of its strategy to sell low-end smartphones to the huge markets of developing countries such as China and India. "It will take a while, at least five years, for Nokia to develop the market and sell the level of hardware needed to bring smartphone applications to the vast markets of the developing world where it will enjoy a big advantage over Apple, whose handsets are too high priced for mass global appeal," says Mr Renowden.

"But Android will be a considerable threat to Nokia because it is being adopted by a range of manufacturers such as LG, Samsung, HTC and Motorola, giving consumers a very wide choice of handsets. Samsung also has its own bada operating system. "When people talk about the battle in the smartphone market, RIM is often the forgotten middle child. But its e-mail functionality appeals to high-end business users and its BlackBerry Messenger service, which is a free instant messaging service, appeals to a younger demographic, so RIM's market share amongst consumers has grown strongly in recent years."

But Nokia is aware that it has to work fast if it is to make up lost ground against its rivals in the smartphone market. "Smartphone innovation happens at hyper speed and, admittedly, we are working to improve our speed and execution in introducing new, competitive devices to the market," says a Nokia spokesman. @Email:[e-mail]