Nokia aims to undercut rivals with volume focus
(Reuters) - Nokia plans to undercut its Windows Phone rivals to give its new smartphones a foothold in the market before trying to improve margins, its Chief Executive Stephen Elop said on Wednesday. — Nokia unveiled a strategy shift …
Context & Ripple Effects
This is the pricing answer to a question the corpus has tracked since 2010's speculation over whether Nokia would build Windows phones at all. The platform shift was confirmed in October, alongside a Europe-first launch plan and the deliberate dead-ending of Symbian — an Osborne effect on its own installed base that left Nokia selling nothing new in the interim while its smartphone share had already slid to 31 percent by January 2011.
Elop's move is to buy back shelf space with price: undercut rival Windows Phone handsets first, restore margins later. It is a bet that volume, not app-store gravity — which a Nokia executive dismissed as 'outdated' in August — is what re-establishes relevance against Android and iPhone.
First-order effects
- Rival Windows Phone licensees (HTC, Samsung, LG) now face Nokia competing on their own platform at a lower price point, compressing what margin the ecosystem's second tier could claim.
- Nokia accepts near-term profit damage on top of the operating-profit decline already reported in January, trading margin for units while its Symbian line winds down.
Second-order effects
- Carriers become the swing buyer: AT&T's confirmed talks about carrying Nokia Windows Phones in 2012 mean operators gain leverage to demand subsidy support from a vendor desperate for placement.
- If Nokia undercuts on hardware, Microsoft faces pressure to sweeten Windows Phone economics — licensing terms or marketing funds — to keep other OEMs from abandoning a platform where its flagship partner sells at a loss.
Third-order effects
- The pattern — a dominant incumbent of the previous era accepting commodity margins to stay relevant on someone else's OS — pushes handset manufacturing toward scale-driven consolidation, leaving premium differentiation to Apple and the Android leaders.
- Whether a mid-2012 software refresh (the confirmed Apollo update) arrives fast enough to let Nokia raise prices again will test whether volume-first strategies in smartphones can ever graduate back to margin, or lock vendors into the low end.
The trend: Smartphone competition is forcing former incumbents to compete on price and distribution rather than platform ownership, with carrier relationships deciding which hardware makers get a foothold.