Tuesday, February 12, 2008

Nokia's Aging 3G Platform

The Nokia juggernaut rolled over the handset market in 2007. The Motorola collapse was the gift that kept on giving, with new highs in margins and the long-term goal of a 40% share finally achieved. Naturally, analysts have extrapolated this success into 2008.

However, I think the announcements coming out of Barcelona are giving the first signs of storm clouds on the horizon. The four handsets that Nokia has launched have some relatively impressive specs, but those mask the fact some underlying problems with Nokia's 3G platform are starting to show. You can see the evidence in just one number from the Nokia N96.

150 minutes.

Yes, that is the 3G talk time for Nokia's new wonder phone. It is also the 3G talk time for the 6220 classic. Now, two and a half hours might be good enough for the anorexic 10mm fashion models that are pumped out of Samsung on a regular basis, but it is an awful number for work horse handsets like the 6220 Classic and the N96. The threshold for acceptability for battery life in handsets is for it to last a full day under heavy usage, and these handsets are very unlikely to meet that challenge. Worst of all is the release date for these two handsets....a Q3 release means that the underlying platform for these handsets is likely to represent the bulk of the units for this Christmas selling season.

So what has gone wrong? Simply put, Texas Instruments is late with their next generation OMAP processor and getting later by the day. The OMAP3 was originally supposed to ship in volume in 2007, but that slipped into "early 2008". No big deal, the competition was just catching up to the multimedia specs of Nokia's Nseries and OMAP3 would allow them to reassert their lead. However, the timing of the 6220 Classic and the N96 means that it is very likely that OMAP3 has slipped again. The question is how late? Word out of Barcelona is the 2nd half of '08 with substantial volumes showing up in '09.

This is going to represent a real problem for Nokia in the high-end during the 2nd half of the year. The N95 was a monster hit during '07 with consumers overlooking its thick dimensions and awful battery life for the privilege of getting a 5 megapixel camera, GPS and multimedia player all in one package. The N96 will still have a lead in some specs versus the competition, but the gap has pretty much been closed. As consumers shift their focus from the features to the battery life and size, competitors such as LG, Samsung, SE, and HTC are going to pick up share in this lucrative market.

Does this spell the end for Nokia in '07? Clearly not, but I dont think analysts are forecasting this erosion for Nokia on the high-end. It will mean a small hit to share, but a larger hit to margins and earnings.

No comments: