Nokia gets its chance to come back as Lumia 920 is hotter than iPhone 5 in China
China is the world’s largest mobile phone market. Early this year it has also overtaken the US as the largest smartphone market and by Q4 2012 exceeded 60m units shipped over one quarter, growing at 38% each quarter, according to IDC. It is no surprise that all mobile vendors have emphasised their focus on China, a market that can make or break their fortunes, especially considering the signs of saturation in some of the key western markets.
This includes all of the three biggest mobile device manufacturers - Samsung, Nokia and Apple. While Samsung’s position in the smartphone market in China last quarter was at no.1, followed by the local players, both Apple and Nokia have been struggling.
Apple’s position has slipped to No.6, while its market share was under 10 percent of all smartphone shipments. No wonder that before the launch of iPhone 5 they were trying so hard to sign agreements with all three major mobile operators in the country, but only managed to get two and missed on the largest one, China Mobile. Sales of the iPhone 5 over a three-day launch weekend a week ago have reached 2 million units - a muted success that was largely attributed to activity in the retail stores of China Unicom and China Telecom, where people were buying subsidised devices at a time when Apple’s own stores have seen very limited action selling iPhones at US $846 and above.
Based on the rate at which iPhone 5 has been selling at the launch weekend previously and the monthly units sold, I estimate that in China Apple is going to ship approximately at a rate of 4.5 - 4.8 million units per month.
Nokia has been ruling emerging markets over the past decade, however the move to be exclusively Windows OS has dropped its smartphone business in China to a 6 percent share in mid-2012. The choice to go with a single software platform (the wrong one at the time) and increasing availability of local substitutes meant that the shiny Lumia smartphones did not get a chance to prove their worth. With the release of Lumia 920 on Windows 8 (regarded by many as the most advanced device on the market) and a growing consumer demand for high-end devices in China, finally the timing seemed right for Nokia and start the comeback and turn back to growth.
Unlike Apple, Nokia have managed to agree terms with China Mobile, the largest mobile operator in the world with a base of 703m subscribers, to have Lumia 920T as the flagship smartphone on the network (as well as Lumia 820 and 620). This, together with a similar agreement with China Unicom, has massively boosted Nokia’s sales channel in China and prospects for a comeback on the back of its high-end device range.
It’s also helpful that the Chinese customers seem to have liked the device and stormed to pre-order online as well as buy in the retail stores, where Lumia 920T has sold out within the first two hours. The model has been outselling iPhone 5 on Amazon China, ranking at No.5 among the most popular mobile phones across all categories a week before launch, and No.1 at the US $300+ bracket.
Sounds like a great success story for Nokia, so welcoming and long-awaited by many (including me). It would have been, other than the fact I have just mentioned - Lumia 920T has sold out within the first two hours. There wasn’t enough supply to sell, therefore everyone stopped buying. A look at the Amazon China store eight days later featured Lumia 920T at No.73, while the top 8 indicates that the spot hasn’t been taken by any of the competing models.
Apparently Nokia cannot produce the quantities of its top phones it requires. In case the information is right that the Beijing plant can only produce 20,000 units of Lumia 920T per day and this is their main facility for the whole of AsiaPac, it won’t be possible to truly challenge the iPhone. I estimate Apple’s revenues from iPhone 5 in China to be around 10x of those Nokia would generate from Lumia 920T sales (based on the assumptions above).
Even taking into consideration the effect of “hunger marketing”, which might be applied, it does look like there is too much “hunger” (underserved demand) and a lack of a clear roadmap informing the consumer as to how it will be dealt with in the near future. Ramping up production, adjusting inventory, supply chain and logistics won’t be easy. The demand might shift to the best available alternative leading to an opportunity lost. Samsung will continue shipping a range of models on multiple platforms, including the rumoured dual-SIM Galaxy SIII. Apple is also expected to be on an upward trajectory, especially if they manage to get to an agreement with China Mobile. Nokia needs to be more assertive in the markets where it really matters and China is one of those markets right now. It would have to be the next big launch if Nokia were to seriously challenge for the leadership in China.