Should Microsoft be happy?
Undoubtedly, Microsoft Corporation (NASDAQ:MSFT) will point to growth of sales volume of the Lumia and other Windows 8 phones as a sign of progress. Based on Nokia Corporation (ADR) (NYSE:NOK)’s number, I expect that research firms such as IDC will report about 8 million unit sales for Windows Phone in Q1. Given that Q1 2012 shipments of Windows Phones only totaled about 3.3 million units worldwide (IDC), the huge year-over-year increase will be touted as a sign of increasing momentum. In terms of unit sales, it is genuine momentum given that market share will increase from 2.2% in Q1 2012 to about 4% in Q1 2013.
Microsoft investors should find some encouragement in this, tempered by the realization that the smartphone wars are as much about monetization as they are about sheer numbers of phones. As Philip Elmer-Dewitt pointed out in a recent post, a Canalys study showed that Apple Inc. (NASDAQ:AAPL) was taking about 74% of all mobile device store revenues, leaving 26% to Google Inc (NASDAQ:GOOG), Microsoft, and Research In Motion Ltd (NASDAQ:BBRY). Such a percentage comes from dominance in affluent markets such as North America and Europe. Selling highly discounted Windows phones into emerging markets isn’t really going to make for much of a revenue stream for Microsoft. In this regard, it’s fortunate that Microsoft intends to start collecting license fees from its manufacturing partners, including Nokia, starting this year.
The bottom line
I think Nokia has yet to show that it can forge a profitable business out of Windows Phone devices, and this should be worrisome to Microsoft. Microsoft would like to have additional OEM partners and has announced that Huawei and Samsung will be joining Nokia and HTC. Is there enough business to go around for four manufacturers? I’m not convinced there is, but clearly Microsoft needs for all its partners to be successful. The Windows Phone share of the mobile pie is still relatively slender, and split four ways, this could mean a net decline in sales for Nokia Corporation (ADR) (NYSE:NOK)’s Lumia, at a time when increased sales volume is essential to achieve genuine profitability. I’m sure this is not the turnaround story Nokia investors were hoping for.
The article Nokia Earnings Smackdown originally appeared on Fool.com and is written by Mark Hibben.
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