Nokia's Chinese Death Spiral

Nokia CEO Stephen Elop speaks in China

Photo: Nokia

Nokia, which is huge in China, is getting undercut by local rivals and losing share, a potentially even more troubling story than its lack of a good smartphone platform.As Bloomberg notes, Nokia’s shipments to China fell 41% YoY last quarter, a terrible number. Part of the reason is that the big Chinese carriers are getting more assertive. And part of the reason is local rivals like ZTE and Huawei undercutting Nokia. 

This is arguably more important than whether the Nokia/Microsoft alliance works, and here’s why.

Here’s how the Nokia bullish story plays out: sure, Nokia doesn’t have a competitive platform, but it’s early days (true), and Nokia still has tremendous reach and distribution and marketplace all over the world. Once it plugs a competitive platform (and Windows is well regarded) into good handsets (and Nokia can make great handsets) it can use that huge distribution to move zillions of phones and become competitive again. 

The problem is that that vaunted distribution advantage can evaporate if Nokia is undercut by nimbler emerging markets rivals who can make phones cheaper and faster. Once that happens carriers will demand lower margins, compressing margins, and give it less shelf space, which means less sales and less scale; in other words, a perfect recipe for a death spiral. And yet, that’s what seems to be in the early stages of happening. 

Before: Nokia’s Depressing Q2 →

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