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Nokia Should Also Consider Acquiring Palm

Posted on Friday, Jun 5th 2009

The Palm Pre’s initial reviews are out, and most suggest it can challenge the iPhone with its QWERTY keyboard and a touch screen interface that finally matches the iPhone’s. Meanwhile, Apple is announcing a new iPhone on June 8 while Nokia is releasing the Nokia N97 mobile computer worldwide in June. In this post, let’s analyze the performance of the two leading mobile phone vendors, Nokia (NYSE:NOK) and Samsung (SEO:005930).

In the two years since the launch of the iPhone, there have been numerous touch screen models but the Palm Pre seems to be the first to match the distinguishing factor of the iPhone: its intuitive interface and software. Unless Nokia also works on its software, its phones will be just another touch screen device.

One feature that Nokia seems to be working on is the availability of applications with its new Ovi Store, with mixed results. The iPhone has more than 40,000 applications, and the Palm Pre has only about a dozen. The number runs in hundreds for the Ovi Store, but its reviews are not as encouraging. And while Apple’s App Store has thousands of applications for just one device, Nokia has just a few hundred applications for about 50 devices.

Another major downside to Nokia is that its phones are not available with US carriers at subsidized rates. Though the company’s focus has been emerging markets, it is losing out on the momentum of the convergence device trend in the US by not addressing this issue. This is of concern, because, for now, the technological leadership in smartphones is coming out of the US.

And there is a growing need for Nokia to work on these technologies in its upcoming smartphones if it wants to increase its market share, which has slipped to 38.1%, and its shipment volumes, which dipped below 100 million for the first time in two years. The overall mobile phone market declined 15.8% while the smartphone market grew 4% y-o-y. No prizes for guessing where all players need to put serious emphasis!

On the financial front, Nokia, the leading handset vendor with annual revenue of €50.7 billion reported its first quarter results on April 16. Revenue was €9.3 billion, down 27% while operating profit plunged 89% to €55 million from €1.531 billion last year.

The Devices and Services segment revenue declined 33.4% to 6.173 billion. Its ASP was down to €65 from €75 last quarter mainly due to pricing pressure, lower-than-expected high-end device sales and a higher mix of low-end phones. Gross margin, however, stayed healthy at 33.8% driven by the success of the 5800 XpressMusic device. Total cash and other liquid assets of €8.1 billion at the end of Q1 2009. Q4 analysis is available here.

NAVTEQ sales were €134 million while Nokia Siemens Networks segment sales were down 12% to €2.9 billion.

Nokia expects its mobile device market share to increase sequentially in the second quarter. It is currently trading around $15 with a market cap of about $56 billion. The stock hit a 52-week low of $8.47 on March 9. If the Palm Pre is as big a success as it could turn out to be, Nokia could also acquire Palm to gain access to the talent, and a strong foothold in Silicon Valley, now the hotbed of innovation in the convergence device arena.

Chart for Nokia Corp. (NOK)

Samsung, unlike Nokia, increased its market share to 18.8% from 15.9% last year. Samsung seems to have caught on well to the smart phone trend and sustained the interest of consumers. Though its models do not boast of an intuitive interface and software, it provides features that are top-class. It has recently launched a touch screen smart phone with a 12-megapixel camera. Its first Android-powered device, the i7500, is expected to hit the European market in June.

Samsung, the second largest handset vendor and also the world’s largest semiconductor producer with annual revenue of 72.95 trillion won ($55 billion) reported its first quarter results in April. With its focus on the high end phones, it has increased its Telecommunications profit margin from 1% last quarter to 11%. First quarter revenue was 28.67 trillion Korean won ($23 billion), down 13% q-o-q and 13% y-o-y. Net income, however, increased to 620 billion won ($498 million).

Samsung has come back strongly from a loss last quarter led by its strong performance in the Telecommunications segment as well as the stabilizing semiconductor prices and its cost control measures. By segment, semiconductor revenue was down 2% to 5.22 trillion won ($4.2 billion), LCD segment revenue declined to 4.24 trillion won ($3.4 billion), Telecommunications revenue increased 30% to 9.77 trillion won ($7.8 billion) and Digital Media revenue increased 19% to 10.07 trillion won ($8.1 billion).

Samsung ended the quarter with cash balance of 5.3 trillion won ($4.3 billion), down from last quarter’s 6.6 trillion won ($5.3 billion). Liabilities are 15.7 trillion won ($12.6 billion). While culturally, the company is not into acquisitions, it certainly has the financial muscle to do so if it desires!

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I’m an iPhone user and i love every little thing about it. I think Palm Pre has a long way to go to be able to take on iPhone. But who knows? The world is round…

However, the thought of Nokia acquiring Palm is an interesting idea. It would surely change many things in the ballgame.

Adventurous Wench travel store Sunday, June 7, 2009 at 9:38 AM PT

Interesting fact is that non iPhone users rarely download or use an app

Saad Fazil Sunday, June 7, 2009 at 11:56 PM PT


The article you point to shows interesting numbers. However, I believe we are just at the beginning of a movement.

Just as each person’s computer is a reflection of their taste and liking – by the way of installed software applications. So is the power of apps to tweak a phone to suit one’s needs and tastes. You can “change” your phone without “changing” your phone!

One sees multitude of apps aimed at achieving similar tasks. Think various twitter clients for mobile devices. The struggle of apps competing to attract users based on their USP (design, features, ease of use) should be seen as healthy competition. Multiple strategies are at work: bait-and-switch, “freemium”, premium. This reflects computer software market.

The mobile device is now seen as a platform for delivering software. Earlier Palm products were known for their ease of use (better software!). Ease of use of its phones would not rank amongst Nokia’s strengths.

Viewed in that light Nokia’s potential benefit from acquiring Palm makes sense. So should Dell if it wants to have a pie of mainstreaming of smart phone trend.

Nalini Kumar Muppala Monday, June 8, 2009 at 9:42 AM PT

There are a couple of take aways from iPhone’s success:

1. Network effects are strong! The more developer write apps, the more users are likely to use them, and the more users use apps, more developers are going to write apps. If you had limited resources, would you prefer to write an app for iPhone with potential to reach millions of users or Android?

2. Apple did make apps easy to use. The last time I used an app on a Blackberry, it wasn’t impressive.

Not to say there isn’t a market for other app stores. I was merely pointing that iPhone so far dominates when it comes to usage of apps

saadfazil Monday, June 8, 2009 at 10:54 PM PT

Unquestionably. Apple is leading the pack.

But in any healthy and interesting market, we need competition, hence, I like to see signs of life, and success, elsewhere as well.

Monopolies get very boring and unhealthy.

Sramana Mitra Tuesday, June 9, 2009 at 8:06 AM PT

It’s a fair “consultant”-type analysis, but you fail to account for the current price tag (including all the Elevation Partners options).

I’d recommend taking a look at Palm’s capital structure and then asking yourself if you would rationally spend that amount to buy the company, or if you’d just buy out the non-competes for the team that built it for a fraction of that price.

S. Tuesday, June 9, 2009 at 8:19 PM PT

The team is not enough. The brand is good. The carrier relationships and expertise is good. The knowledge and experience of building developer networks is good. How much of the team can you hire away? For Dell, for example, who has no experience or presence at all in the convergence device business, I believe acquiring Palm is a very cheap way to get into the business.

Nokia is a different story.

But for both, a Silicon Valley DNA company would be an asset.

Sramana Mitra Tuesday, June 9, 2009 at 9:22 PM PT

Nokia has put all of it’s considerable efforts behind Symbian Foundation o/s.

Nokia single biggets failing is it’s not putting the user at the centre of its designs but technology leading to less than optimal user experiences.

Apple Iphone has put the user at the centre of it’s designs at the expense of class leading technology.

Nokia needs a culture change. Analysis of Palm balance sheet adds little to the debate as where does it show creativity and culture?

Economyst Thursday, June 11, 2009 at 8:45 AM PT

They’ve just launched a new phone in this crowded market, and is getting great reviews … can you say that of either Nokia or Dell? I’m afraid it is too early to see its impact on the balance sheet … the product just launched, for heaven’s sake!

On the other hand, Nokia has so much market clout and so many strong channel relationships abroad, it would give Palm a wonderful, synergistic partner to grow with.

Dell has none of that, but it has cash, staying power, and it needs Palm, so will pay a good price for the company.

Sramana Mitra Thursday, June 11, 2009 at 10:34 AM PT

Nokia will provide distribution overseas for Palm but will Nokia let Palm develop without its influence – no way. So what are they buying – the o/s, design team? Nokia has invested a heck of a lot into Symbian and now what would it’s purchase of Palm say?

It’s defintely not the hardware – read reviews the hardfware has some serious issues and the o/s as you can expect is still not robust.

Dell would not know what to do with Palm – other than offer them money. Dell does not need Palm. Dell needs to start making netbooks and notebooks that have some design flair – not just a different plastic shell.

Dell need to look at their own business first then try to find an external solution.

Economyst Friday, June 12, 2009 at 3:25 AM PT

I think we have a fundamental disagreement about what Dell needs to do with its business.

As for Symbian versus WebOS, I agree, that Nokia’s investment in Symbian has been huge, but the success has not been huge. It is yet to be seen how WebOS does. If it does well, then it may be an opportunity for Nokia. If Nokia is not going to use what Palm has, then there is no point buying Palm. But I am not in agreement with your confident comment that Nokia will simply kill Palm. I guess I give people’s intelligence more credit than you do. If Nokia wants a Silicon Valley style culture to drive its R&D future, Palm is a very good bet, especially if Pre+WebOS is a success.

We’ll find out in the next 12 months.

Sramana Mitra Friday, June 12, 2009 at 8:23 AM PT