Nick Jones

Do you want the good news or the bad news? We just had two sets of handset manufacturer financials today, many observers reported them both as terrible, but in reality they couldn’t be more different.

Nokia’s devices and services business is doing OK. Not great, but OK. Even in the current miserable economic climate they’re holding onto market share, making money, and while doing so are part way through a massive transformation to make services a big part of their future business. Nokia certainly has device challenges, their range is very biased towards the low end, they have terrible market share in the US and the high end smartphones are deeply unexciting, but when all’s said and done they are the market leader and the devices business is profitable.

It’s also interesting to look at where that money is being spent; despite falling device revenues Q2 R&D spend is pretty much the same as it was a year ago. My personal guess is that a lot of this R&D is going into Ovi, probably large numbers of hundreds of millions of euros a year. I’m sure this has made for some difficult choices where some handset R&D might well have lost out to Ovi. Could this explain the long gestation of the N97 and the fact S60 still has a horrible user interface? Maybe in 2010 Ovi will be more complete and need less investment so handset R&D will ramp up a bit. NSN is more than a bit challenged (to use typical British understatement) but I’m not as interested in networks as devices so I’m not going to discuss them here. The markets were disappointed, partly because ASP fell and Nokia was more cautious about the rest of the year but IMHO that was over-reaction. Whatever its faults Nokia is a company with a vision, direction and ability to execute.

Sony Ericsson couldn’t be more different. They haven’t yet stabilised the handset business, they shipped only 13.8 million units in the quarter, volumes are falling and they’re losing over 200 million euros a quarter. Their classic differentiation on imaging and music isn’t much of a benefit any more because everyone else has good music and imaging these days. They have a “me too” appstore initiative which doesn’t look to be very differentiating. They’re part way through a cost cutting exercise that won’t finish delivering results until 2010. Their new product portfolio will apparently “integrate communications, entertainment and social media”. Sorry but this sounds just like any high end smartphone, iPhone has been doing it superbly for a year, Nokia N series competently for longer. What I see is a company with average technology, an unclear vision, and a difficult financial position.

The handset market might perhaps have bottomed out, but it looks as if some people are still going down.