With all the commotion over Google's challenge to the iPhone, it has been easy to overlook the limping giant of the mobile phone market. Nokia sells more than one in three of the world's handsets, but it has been outwitted and outclassed in the race to build smartphones. This is more serious than it seems.
Smartphones represented just 15 per cent of Nokia's net sales by volume in the third quarter, but 45 per cent by value. It has the biggest slice of that market but is losing share to Apple, RIM and rivals using Google's Android operating system. In spite of spending about a 10th of net sales on research and development last year, Nokia's own jumble of software and operating systems has been met with frustration from developers and a shrug from consumers. Its operating margin has almost halved since 2008.
Should Nokia admit defeat on software? It is not yet clear how many competing operating systems the world can really support. Nokia could abandon its proprietary strategy, hitch its cart to Android, and become a simple hardware company. Management is understandably unwilling to countenance such a move. Nokia is brilliant at hardware – and always has been – but squeezing money from it in the smartphone world will be tough. The last thing it wants is to wind up like Dell, the unloved hardware-maker of the PC sector.