Nokia Corporation (ADR) (NYSE:NOK) currently sits between a rock and hard place. Its feature phone business is feeling the effects of the smartphone revolution, and its smartphone business isn’t necessarily knocking it out of the park. Between the two, it’s safe to say that Nokia is lagging behind the competition, forcing it to make up for lost time. To compensate, Nokia has taken a rather aggressive approach in the way that it prices its smartphones relative to the competition. Focusing primarily in the emerging-market segment as its bread-and-butter opportunity, Nokia Corporation (ADR) (NYSE:NOK) seems determined to give the competition a run for its money within markets that have lower smartphone saturation. However, it doesn’t necessarily guarantee the company’s success, especially for a company that’s in Nokia’s difficult position.
More pain ahead
Between its feature phone business and its smartphone business, Nokia Corporation (ADR) (NYSE:NOK) is currently fighting a war on two fronts. Unfortunately, Nokia’s feature phone business has one foot in the grave. IDC is forecasting that 2013 will be the year that smartphone shipments will surpass feature phone shipments for the first time. In other words, we’re right on the cusp of the beginning of the end for feature phone shipments. Considering Nokia’s feature phone business made up over 50% of the company’s device revenue last quarter and it commanded a higher gross profit margin than its smartphone business, Nokia faces structural headwinds in the years ahead as the industry transitions away from feature phones.
Having largely missed the boat on the smartphone revolution, Nokia Corporation (ADR) (NYSE:NOK) was practically forced into partnership with Microsoft Corporation (NASDAQ:MSFT), which happens to share the same lack of success in smartphones. Together, this underdog couple hopes it can wage war in the smartphone market against the smartphone juggernauts, Apple Inc. (NASDAQ:AAPL) and Google Inc. (NASDAQ:GOOG). On the surface, this partnership gives me the sense that it’s a mutually beneficial arrangement. Nokia benefits from the support of a player with deep pockets like Microsoft, and Microsoft Corporation (NASDAQ:MSFT) benefits from having an experienced OEM in its corner. However, once you dig deeper into the nature of this partnership, you quickly realize that Nokia is getting the short end of the stick.