A Look At the Pre-Elop Years

Recently I got a really relevant comment on my earlier post on Nokia. Let me copy-paste the comment here.

Anonymous said...

It Would be nice to see pre-Elop year in the graphs. Let's say Q3 2009 onwards. Now we know Nokia switched the strategy but do not e.g. see the rise of Android and drop of Nokia market share behind it.

April 20, 2013 at 9:00 AM

I created this post to extend the revenue & profit graphs in the pre-Elop years. In fact, right from Q1 2009 to Q4 2012. So here's the first graph, showing revenues & net profit for Nokia group.

Click for larger view

As can be seen, the revenues were rising from 2009 onwards, peaking in each Q4 (the Western holiday season which sees greater revenues). However, the profitability of the company was not too great. Q3 2009 was loss-making, while most of the quarters, Nokia manged to make a few 100 million euros of profit.

Profits shot up in the Q4 of each 2009 (882 million euros), and 2010 (742 million euros). In Q1 2011, Elop's new Windows-Phone strategy was announced, and revenues started falling, and profitability was hit. But this was covered also in the last post.

Although it is easy to see that revenues were higher in the pre-Elop years of 2009 and 2010 (Elop joined Nokia in Q3 2010), one can always argue that the profitability of the company was in question. So was Nokia feeling the heat of the iPhone and Android beating down on it's profitability? To answer this,as in the last post, I looked at just the "Devices & Services" business... the one which is responsible for the smartphones and feature-phones.
So here's just Devices &Services over the same quarters...

Click for larger view

Now this graph shows solid revenue, profitability and growth in Devices & Services until Q4 2010. Note that the nature of the industry is such that the "Q4 peaks" will always occur. So for e.g. it was not alarming that revenues fell from Q4 2009 to Q1 2010. Note that even in weaker quarters, D&S maintained respectable profits. In fact, in some quarters it was the "sole bread earner", compensating for NSN's losses. All that changed from Q1 2011. Of course, there's no point in going over that again, as it's already covered in my last post.

Smartphone's affinity for open source software

I had been preparing for a presentation on open source software, and I came up with an interesting find. Here's the 2011 market share of smartphone OS'es (numbers from TomiAhonen Almanac 2012), with call-outs indicating open source pedigree.

Open source use in smartphones (Source TomiAhonen 2012 Almanac)

 Android
Everyone knows that Android is an open eco-system, based on the GPL v2 Linux micro-kernel. The rest of the Android stack is also open source, licensed under the Apache license.


iOS
A bit of a surprise, isn't it? Even for a closed eco-system like Apple's the use of open source software is pretty widespread. The kernel of iOS & OSX is based on Darwin, another open source BSD licensed micro-kernel. Wikipedia has a good article on Darwin.
Besides the kernel, iOS also uses a variety of other open source components, for e.g. OpenGL ES, Independent JPEG Group's libjpeg, ANGLE (OpenGL to DirectX mapping), KISS FFT, json, among many others. If you don't believe me, check Settings->General->About->Legal on your iPhone!

Analysis of Nokia 4Q 2011 results

Results Summary
21% Year on year decline in revenue, 155% decline in earnings per share (IFRS), and 8% decline in mobile device volumes. Things certainly dont look too good for Nokia, especially considering these are Q4 results (the Christmas quarter). As the interim report states...

"On a year-on-year basis, the decline in our total Devices & Services volumes in the fourth quarter 2011 was driven by significantly lower Smart Devices volumes. Mobile Phones volumes were approximately flat year-on-year. "



Specifically, "Devices & Services" business saw a 29% decline in net sales, 11% decline in operating margins. The decrease in margins are quite likely due to the shift to Windows Phones OS, which increases the BOM if each phone (licensing royalties to Microsoft). At least I see no other explanation, as gross margin is very simply revenue - cost of goods sold.

Revenue & Net Profit Trend
I tracked Nokia’s revenues & profits over the last 3 years, and the chart below shows the trend from 2009 to 2011.

Nokia 2009 to 2011

The two peaks in the blue revenue line shows the seasonal phenomenon in the electronics/computer industry where Q4 sales are always much higher than previous quarters. It is interesting to see that there was a good peak in Q4 2010, but it was followed by a quick decline in Q1 2011 onwards. This is most likely due to the 11-Feb-2011 announcement of moving away from Symbian, which reduced the demand for Symbian smartphones overnight. As Nokia says...
"Following the announcement of our strategic partnership with Microsoft in February 2011, our strategy included the expectation to sell approximately 150 million more Symbian devices in the years to come. However, changing market conditions are putting increased pressure on Symbian. In certain markets, there has been an acceleration of the anticipated trend towards lower-priced smartphones with specifications that are different from Symbians traditional strengths, which has contributed to a faster decline of our Symbian volumes than we anticipated."
While the revenue is increasing sequentially (i.e. increasing from Q3 2011 to Q4 2011) it falls short of what Nokia was selling in 2010, and even in 2009. This is probably quite serious for the company... it’s performing worse than it was 2 years back.

Five Reasons Why Forbes May Be Wrong on Microsoft's Windows Phone

My LinkedIn homepage directed me to this article today on Forbes, titled “Five reasons why Microsoft Windows Phone will make a big splash”.

Interesting read, but sadly, not many of these 5 reasons cited by the author make much sense to me. Of course, they all make sense, in general, but I don’t see any of these 5 reasons strong enough to make a “big splash”!

Reason #1: Windows Phone Has A Totally Unique UI

Yes it does. So did RIM playbook, but that did not help RIM much, did it? Having a unique UI may or may not help make the product a success. Having a UI that makes something simpler, easier or faster to do may help, but still cannot guarantee success. 

Reason #2: Originality Means Fewer Forays Into The Patent Wars

Come on now! When you have a minefield of patents for everyday activities like clicking a button on a touch-screen, or uploading a photograph, no smartphone OS maker can be safe from patent wars. The only way to prevent patent wars is to build a big & mean portfolio of patents as a deterrent to any infringement claims. I believe Microsoft already has this, and so the point of fewer patent wars is valid, but the reason is not "originality".

Reason #3: Uniformity Across All Devices & Carriers

iOS already has this. So what's new? And who says that tight control and uniformity is the key to success in smartphones? We're talking about the world here, not USA. Android's "clopen" system is successful, Apple's closed iOS is also successful. Microsoft has just chosen to go the Apple way instead of the Google way.

A Week With the iPhone: A ex-Symbian addict's view

One week back, on an impulse, I bought the iPhone 3GS. I explained why in my last post. In this post, I share my first week’s experiences moving from Symbian to iOS5.

General Usability
Setting up the phone was quite simple. Apple provides a small pin to pull out the SIM card slot at the top of the phone. Once the SIM is inserted, the phone has to be powered up, and it guides you through the installation process. 

Setup screens.

I had no problems transferring my contacts, since all my contacts are on Outlook (MS Exchange). Once I configured the Exchange account, all contacts were there for me on my new phone.

I have been quite used to the Symbian way of "Menu" button based browsing apps and settings on the phone. On iOS, there is no "Menu" button. All the settings and apps are there on the various home-screens, and you just tap the icons directly. Of course, Symbian Anna & Belle had pretty good home-screens, but they had shortcuts and widgets...you could still press the Menu key to get to the application, and that’s what is not there in iOS. It’s more simple, I guess, but at times I find myself pressing the "Home" button, thinking it would take me to the "Menu" (old habits die hard). I also took some time to figure out that there is no option for closing or exiting an app in iOS. Pressing the home-screen is the way to close an app.
As expected, I found iOS to be more responsive than Symbian in launching of apps. To be fair, there are times when the phone is sluggish, you press keys, but are not sure if it has registered, etc etc, but overall I find that the launch times of most applications are quite faster than on Symbian. One reason could be the more powerful Cortex processor, which Symbian phones still dont have. The other reason is that the application development concept itself is different. For those interested here is an excerpt from the Apple developer pages.

"For example, an app’s launch time is almost always something you should improve during the development process. Other critical tasks should always be performed quickly. When a task cannot be performed quickly,
your app’s user interface should provide some clue to the user that the task may take additional time. Tasks that cannot be performed quickly should not block the user interface; perform these tasks in the background instead."

Content (Apps, Games etc)
One buys a smartphone these days with the single objective of loading it with favorite apps. Both Symbian and iOS have a vast library of apps, games & themes. But I am impressed by two things in the iOS app store

1) Ease of finding the app you want - It is quite simple, just type in the iTunes search box. I wonder why Nokia Ovi Store made it so difficult for me to find anything.
2) Quality of apps - Apple’s stringent scrutiny sure pays off here. I used to download and even buy apps from Nokia Ovi Store on my N8, but apart from the Angry Birds series, I never found anything that was compelling enough to hold my attention. But for every app I downloaded for the iPhone, I was addicted to it. The games are real fun, and quite engrossing as well.

Screenshot from Metal-Storm game.

The e-Books have opened up a whole new category to me. I got the entire Sherlock Holmes collection for free from the app store. This is really cool, and I love reading these e-Books.

The complete Sherlock Holmes.

Goodbye Symbian, Hello iOS

I finally joined the iOS bandwagon by purchasing a iPhone 3GS from Aritel yesterday. It was available at a discount, because of the launch of 4S (I guess Airtel needs to clear it’s inventory). 

iPhone 3GS in the box.

Contents of the box (everything but the swiss knife on the right).

Why iPhone/iOS?
This is my first non-Nokia phone in the last 11 years. This is my second non-Symbian phone (I breifly used a S40 phone) in the same time. To be frank, I never thought I would buy an iPhone. A Nokia Symbian phone has always offered the best value-for-money while still satisfying the techno-geek in me. But as Nokia CEO decided to kill Symbian, I thought it’s about time I looked at some other smartphone OS. I had to choose between Android or iOS, because the other OS’s out there are not for me! Windows Phone is something that I personally will never buy, the reason for which I have ranted on in an older post. Blackberry is in more trouble than Symbian, and I strongly believe it will not last. The smartphone market is what economist call a "networked market" where it’s either a virtuous cycle or a vicious cycle.
My first choice was, of course, Android. However, after researching a bit, and asking a few questions to Android owners I realized that Android is just the new Symbian. Android’s evolution is quite similar to that of Symbian... a large technology firm is backing it and driving the roadmaps, many handset manufacturers have adopted it, ported it on a wide variety of hardware, ranging from ARM9 to ARM-Cortex-A9, and customized the UI. Android users also give a pretty underwhelming response when asked for feedback. The most general response from Android users is "It’s a pretty attractive phone, but it has a few nagging problems". I think Android will soon face all the problems that Symbian did, and within the next 5 years will start declining. But that’s all my prediction, which is based on no data to speak of, except an uncanny resemblance to the Symbian story. My logic, whether flawed or otherwise, convinced me to not buy an Android phone.
So I was left with iOS, and seeing the prices of iPhone 4, and 4S in India, I kind of gave up on the idea of buying a new phone. The iPhone 4 costs Rs. 38,000, while 4S is Rs. 44,500. For that much I could buy a nice laptop, thank you very much! However, while searching the airtel website for iPhones, I noticed that they are still selling the 3S, for a much more affordable price. At Rs. 20,900, it is cheaper than my existing N8. I guess this was the best way to jump on the iOS bandwagon. I researched the technical specs a bit, and found that although it runs at the same clock speed as the N8, it’s based on Cortex A8, which is faster than the ARM11 on my existing Nokia N8.

2011 Smartphone Market Share

What would be the 2011 market share for smartphones by OS platform? If predictions by Gartner & IDC are anything to go by, Android is clearly the winner & Windows Phone at the bottom. Both Gartner and IDC have released their forecast for 2011 market shares. Both have similar figures, as expected, but Gartner is slightly more optimistic iOS and Windows share. But overall, their figures differ by 1 to 1.5% only.

The chart above is a average of the two analytic firm's predictions. 


Looking at this, I could draw the following conclusions...

• Android is the new Symbian
• iOS is the new Blackberry
• RIM itself is down but not out
• Windows - Long way to go to become anywhere close to the "3rd ecosystem".

A Brief History of Symbian

1998 to 2001: Genesis

In 1998, several mobile handset manufacturers gathered around to bid for British company Psion’s embedded operating system, code named “EPOC”.  Psion was a PDA manufacturer then, and EPOC was their transition from 16-bit to 32-bit operating systems. The consortium of companies, consisting of Nokia, Motorola, Ericsson, NTT Docomo & Sun Microsystems acquired the EPOC operating system, along with key personnel of Psion, and formed Symbian Ltd. Motorola later left this consortium, and was replaced by other firms like Panasonic, Sony-Ericsson & Samsung.