Nokia – Dance with the devil

A switch to Android from Asha might just work.

• It looks very much like Nokia has decided to participate in the race to the bottom and will be making low end Android devices.
• However, where LG, HTC and Motorola will all fail, Nokia might just succeed.
• This would be forked version of Android that Nokia maintains and looks after and would probably replace Asha over time.
• This would have the huge advantage of opening Nokia low end devices to the enormous app. ecosystem but the also have disadvantage of a higher level of cost to maintain the code.
• Effectively, Nokia will have to replicate the Android organisation inside Google and assume responsibility for every line of code in its Android handsets.
• This is a level of cost that its competitors will not be incurring and so Nokia will have to make it up elsewhere.
• This will be much more expensive than maintaining the Asha code line but as long as volumes are higher to compensate and the Nokia user experience improves, this should not be a problem.
• At the ultra-low end of the market Nokia has talents that the other Android makers lack.
• Back in the heydays of 2004-2008, Nokia regularly reported margins of over 20% on the cheapest devices it made.
• It was able to do this through a combination of scale, platform, logistics and brand.
• I believe that some of this heritage still lurks inside Nokia and it is this know-how that could allow Nokia to make a reasonable return on low-end Android where its competitors currently fail.
• Using Android will allow Nokia to compete on a level playing field with other handset makers in this space but participating in the race to the bottom is risky.
• No matter how good Nokia’s DNA is, almost everyone is losing money in low-end Android and this will keep a lid on any turnaround.
• Hence, while this could be a move that solves one of the biggest problems of Asha (apps) it is not without risk.
• It will take a herculean return to form to pull this off but it is not as dumb a move as it sounds.
• It will be Microsoft that reaps the benefits or pays the price for this radical move as any impact on Nokia’ share price has already been crystallised.