Nokia may be betting its future on a US $20 non-Smartphone device. On 18 April the Finnish handset manufacturer reported that it sold 11 million fewer phones in the first quarter than analysts had predicted, and sales of basic phones were down by 21 percent, to 55.8 million units. Poor results notwithstanding, the company perceives low-end business as critical and intends to revive it with the Nokia 105, its cheapest product to date. The 105 features preloaded games, a color screen, a speaking clock and a flashlight. It has just gone on sale in India and Indonesia and will soon become available in Europe.
Nokia’s move is counterproductive and likely to fail. While we acknowledge that the budget sector is important to Nokia’s business (90 percent of the devices it sold last year were basic phones, and they accounted for 31 percent of revenue), we still feel strongly that associating the Nokia name with a product this low-end will further damage this already ailing brand. By taking such an approach, the formerly dominant Finnish phone giant makes itself appear desperate and willing to lay aside technological innovation and high quality in a panicked effort to shore up losses. Since the introduction of the iPhone in 2007, Nokia’s share price has plummeted by 80 percent, even as Apple’s has quadrupled. What it needs now is to increase prestige, and that is simply not accomplished by going “down market.”
Besides, the low-end or “dumb-phone” sector of the handset market is shrinking as smartphone adoption continues to grow. Plus, with such a low-priced item, anyone doing simple multiplication can see that Nokia’s plan doesn’t bode well for generating a lot of revenue. Moreover, the company is leaving itself no margin for margins, so to speak. And even if the 105 does throw off some cash now, it is counterproductive with respect to reviving the brand. By relying on it to this extent, Nokia is actually (and deliberately) moving further away from Samsung and Apple, thereby endangering its standing in the highly brand-conscious youth market. And for those within Nokia who believe the 105 will provide it with the inside track when a low-end user moves up to a smartphone, we think the opposite will occur. That aspirational subscriber will likely make the move to an Apple iPhone or a Samsung Galaxy and not to a smartphone from the maker of a $20 dumb device.
In summary, Nokia’s latest move is not the way, in our view, to get back into the game. It is a limited and limiting solution with no long-term strategic benefit and plenty of potential downside.