Smartphone battle hots up with big gamble in Las Vegas

Nokia sees its future hinge on the Lumia 900, which it unveiled last week. Julie Jacobson / AP Photo

A new smartphone war has begun in earnest this year as the PC dinosaurs Microsoft and Intel try to muscle in on the market leaders.

At the Consumer Electronics Show in Las Vegas last week, the Finnish phone maker Nokia launched its first truly competitive smartphone running Microsoft Windows software.

At the same show, Intel also made its move on the smartphone market, which is dominated by chips from UK-based ARM. Paul Otellini, Intel's chief executive, unveiled the K800, a smartphone running on Intel chips and Google's Android software, and manufactured by the Chinese PC maker Lenovo.

Nokia, Microsoft and Intel all took a big gamble in Las Vegas.

But Nokia, in particular, is now seeing its future hinge on the phone it unveiled last week, the Nokia Lumia 900. The smartphone is being seen as crucial to cracking the US market, where Nokia has always been weak. Nokia says the phone has been especially designed for the discriminating US user.

The Lumia 900 runs on new high speed data wireless networks, providing what are termed long-term evolution services. The phone also features a good-quality camera lens supplied by Carl Zeiss.

"The Lumia 900 … is a hugely important product as it represents Nokia's first competitive and credible smartphone for the US market in many years, and has the support of one of the largest carriers in AT&T," says Tim Shepherd, a senior analyst at the research company Canalys.

However, Nokia has hurdles to clear before its smartphones can begin to make any impact on the market share of Apple iPhones or that of smartphones running Google's Android software.

"Nokia will need a wider range of smartphones to be back in the game.," says Thomas Husson, an analyst at Forrester Research.

The new Nokia Windows phones will have to fight it out this year not only with existing rivals but will soon have to go toe to toe with new devices such as Apple's long-awaited iPhone 5, expected to be released this year, together with a raft of new Android phones. "Apple will launch an updated iPhone in 2012 … and Apple will be eager to reassert itself as an innovation leader," Mr Shepherd says.

But even Apple is being surpassed by the South Korean company Samsung, which makes smartphones running Google's Android software. Samsung is well positioned to maintain its market lead, Mr Shepherd says.

"Samsung is now the global smartphone market leader, and with deep pockets and a willingness to spend big on marketing," he says. Taiwan's HTC, another smartphone maker using the Android operating system, also provides stiff competition for the Nokia Microsoft alliance.

The question facing Nokia and Microsoft is whether there is any room for a third big player in the smartphone market.

The PC market was dominated for decades by a worldwide range of electronics makers shipping machines running Microsoft software, with Apple taking a healthy niche at the high end of the market.

The same situation is now apparent in smartphones, with Android smartphones dominating the mass market and Apple occupying a high-end market position. Even RIM, the maker of the popular BlackBerry range of smartphones, has seen its US market decline together with investor confidence.

Nokia created truly global sales channels by supplying low-cost mobile phones to developing economies. But it must now prove itself in the US against the iPhone and against phones running Google's Android software.

"This is likely to be a make-or-break year for Nokia and they will continue to face very serious challenges in 2012," Mr Husson says.

But one factor in Nokia's favour is that the smartphone industry is resilient enough to weather a prolonged recession during this year while continuing to offer new opportunities.

"Canalys research has repeatedly shown that smartphones - or rather, the mobile phone market more generally - is pretty recession proof, as consumers value their mobile phones so highly," says Mr Shepherd.