Mistakes, heavy competition forces Nokia to reboot

IDG News Service - Nokia is betting on camera functionality, navigation technology and further price reductions for its Windows Phone-based products to turn the company around after a round of cost cuts. Breaking Apple's and Samsung's stranglehold on the smartphone market won't be easy, however.

Nokia's announcement Thursday that it will lay off 10,000 workers by the end of next year to cut annual operating costs by an additional 1.6 billion euros ($2 billion) doesn't surprise analysts.

"It is definitely a move where Nokia is facing up to reality. The size of its business needs to reflect the market opportunity the company has today, and that is very different from Nokia in its heydey," said Ben Wood, director of research at CCS Insight.

Richard Windsor, global technology marketing analyst at Nomura International, agrees: "The company needed to announce something fairly drastic in order to realign itself with the reality it faces."

Earlier this year, Nokia announced that it would be laying off workers in Europe and Mexico and move some manufacturing capability to Asia to be more efficient.

For Nokia, a combination of factors have put the company in an increasingly difficult situation. Nokia's strategy simply isn't playing out as well as it had hoped, according Wood. Sales of its Windows Phone-based Lumia smartphones haven't taken off to the extent it needs, the appetite for Symbian-based smartphones has disappeared very quickly and Nokia has also struggled in the feature-phone sector.

In general, for companies that aren't Apple or Samsung Electronics, today's smartphone landscape is pretty grim.

"It is such a difficult, competitive market. The stranglehold that Apple and Samsung have on the market in terms of both units and profits is just leaving crumbs for the rest of the market to fight over," said Pete Cunningham, principal analyst at Canalys.

"The fundamental challenge has been breaking through the strength that Android and Apple have in the retail environment," Nokia CEO Stephen Elop said during a conference call related to the changes.

Ultimately, Nokia has to make its feature phones and smartphones more attractive to consumers. To achieve that, Nokia is betting big on imaging and location technology.

The Symbian-based PureView 808, with its 41-megapixel sensor, has changed the game in photography and will appear in the rest of Nokia's smartphone line-up in the future, according to Elop.

Nokia also plans to acquire imaging specialists as well as all technologies and intellectual property from Swedish company Scalado to boost its capabilities.

"The problem Nokia faces is that other manufacturers have really seized the agenda with camera capabilities ... But we are seeing signs with the PureView technology, although on the wrong software platform, that Nokia still has a very strong competitive edge," said Wood.