Not Seeing Much Return on That Massive R&D Spend, Are You, Nokia?

February 3, 2011 at 4:10 am PT

Nokia spent scads of cash on research and development last year, but didn’t see much return on it. Certainly, the investment did little to slow the continuing deterioration of its competitive position. The company’s R&D spend for 2010 on mobile was $3.9 billion–almost three times the average of its rivals’, according to a Bernstein Research estimate. And for what? Symbian^3 and the troubled N8? According to Bernstein’s estimate, about a third of Nokia’s R&D spend went to Symbian.

Hamstrung by institutional inefficiencies and the complexity of its legacy platforms, Nokia is spending a lot of money to gain traction in markets in which its handset lineup is clearly uncompetitive, and with little success. Instead it’s suffering steeper share losses at the high end of the market and margin erosion across its entire portfolio. And it’s spending about 4 times as much on R&D as Apple, which has recast the smartphone space from its own vision.

As Bernstein analyst Pierre Ferragu observes, Nokia’s business appears to be melting like an ice cube. “At this stage, we believe that even a good success of Symbian^3 would barely stabilize the business,” he says. “A real comeback will need much more effort … and a lot more time, unlikely to happen in the next couple of years, in our view.”

So what can be done? Though some observers argue Nokia should scrap Symbian, Ferragu says that’s impossible given the number of assets the company has that depend on it. The company can’t really make a big move to Android, either. That would undermine its current service strategy and alienate partners, European carriers looking for an alternative to iOS and Android, and Nokia’s developer community.

What it should do, he says, is redouble its efforts on MeeGo and make it a viable competitor to Android and iOS in markets like North America, while continuing to push Symbian to the rest of the world. And then it should integrate the two through QT, its cross-platform application and UI framework. Says Ferragu, “By migrating all UI developments of Symbian on QT, the company can generate significant cost savings, progressively drive the platform towards a single UI between MeeGo and Symbian and a single development environment for applications.”

What’s left to do after that?

Hope for the best.

As CEO Stephen Elop said during the company’s last earnings call, “Nokia must compete on ecosystem to ecosystem basis. In addition to great device experiences we must build, catalyse or join a competitive ecosystem. And the ecosystem approach we select must be comprehensive and cover a wide range of utilities and services that customers expect today and anticipate in the future.”

“Whatever the strategy is we outline on Feb. 11, we very clearly ensuring that it will give us the opportunity to reopen markets such as the U.S. and some others, where we have not recently been present.”

Tagged with: Android, Bernstein Research, competitor, developers, development, digital, estimate, Facebook, Google, handsets, hardware, innovation, iOS, John Paczkowski, legacy, lineup, losses, MeeGo, Nokia, Pierre Ferragu, platforms, R&D, research, Symbian^3

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http://twitter.com/asymco Horace Dediu

The title of the chart is wrong. The numbers (at least those of Apple) represent fourth quarter not full year R&D.
http://www.facebook.com/people/Lig-Riv/100000846401146 Lig Riv

And even if it were true…one phrase into the article, I thought “this has got to be written by John Paczkowski!”. Turns out – I was right (and this speaks volumes about the author of this article).

Mr. Paczkowski – even if Nokia would’ve invested 10 times the average of competitors, the results don’t *have to* be visible right now. They may become visible in a year or two from now…. how can you know all (or most of) those money went into Symbyan^3 and N8? (I sincerely doubt they did, BTW).
http://twitter.com/asymco Horace Dediu

On second look, it seems that they may be measuring R&D spending on iPhone alone as Nokia’s number is Devices & Services rather than Nokia Group.

In that case, it should be made clear that what’s being compared is the R&D for mobile phones.
http://twitter.com/Phyx Phyx

Uhmm.. you have to be kidding me right? Nokia has had a hand in creating alot of celullar technologies those “successful” phones you mention use and pay royalty to them for. Including but not limited to GSM and LTE.

You “reporters” seem rather short sighted lately and i’m starting to miss the good old days of paper, where facts were actually checked and post were more then just baseless rants…

Nokia has and continues to do more for the telecom industry than Apply AND Google combined, as the underlying technology that makes their pretty little UIs get data doesn’t run on air.
http://twitter.com/usemeego meegouser

Nope, it looks about correct.

Apple will need to pay up for all the stolen Nokia intellectual property they have inside their iPhones and iPads.

Nokia have been innovating in hardware and software for decades. They basically invented the smartphone.

If it wasn’t for Nokia your phones would still have fat antennas sticking out the top.
demodave

Check your orthography, dude.

“alot” = a lot

“post were” = posts were

The list goes on. You can’t rant on such things without getting them right yourself.
http://twitter.com/Phyx Phyx

So the best response you have is my against my English. Good job.
http://twitter.com/Phyx Phyx

So the best response you have is my against my English. Good job.
Anonymous

It’s the difference between Life and death!!!

Explanation:

Try dropping any HTC or Samsung or Sony Phone and any Nokia phone (all preloaded with important and sensitive data like contacts, calendar and notes,heck even internal memory filled with docs) from a second/third floor balcony (Do not try this at home kids!!!)

and see your whole digital life flashing in front of your eyes
only to see that the nokia phone survives with all camera and vibrator functioning to boot .

Sure Nokia’s Symbian might be wrongly designed ,not flashy ,Slow, Stubbornly not have a portrait keyboard.
But hey if all your data is safe and functioning (daresay even ready to go another one on one round with another balcony drop ) its worth it
Sure counter arguments might be possible that data backup is ultimately left to the user in these situations but i doubt even the most power hungry user will backup phone data with backup time restricted to a week

At the end all i am saying is people do not regularly drop phones from such heights or purposely subject it to such torture but its the moment of truth when an incident like this might occur and your whole digital life hangs on this research its because of research like this
that we have a belief in brand name and quality.
Anonymous

John,

You call yourself a journalist ? Shame on you !!
Anonymous

Lets not forget that the fruits of Nokia’s research benefits a lot more people in this world than Apple. I am sick and tired of these latte sipping mostly US based smug hippies who cant see beyond Apples fruit. Muppets !
Anonymous

Nokia may have wasted Squillions on R&D in the last few years, especially after they write off Symbian and MeeGo (to another supplier?), but don’t forget their major R&D success of 2010.

The bicycle powered phone charger!
Anonymous

Read any Nokia phone manual and it shows you where not to grip the phone in order to avoid attenuating the internal antenna.

As for creating technologies that other makers then use, Nokia’s smartphones include the Apple WebKit HTML5 browser engine, and MPEG-4 multimedia containers, which are the ISO/IEC standardization of the Apple QuickTime file format. Web, audio, and video on Nokia is courtesy Apple. The more that phones become like computers or iPods, the more Nokia owes to Apple, same as everyone in computing and digital multimedia. The Web itself was created on OS X using Apple’s developer tools.

Having said all that, though, I think Nokia does get short shrift. Yes, their profits are way, way down since Apple took away the high end of the phone market, but on the other hand, Nokia is the second most profitable phone maker after Apple and makes more profit than RIM and Android and Windows phones combined.

But the true problem is the phone market has changed dramatically, it is getting swallowed by the iPod market, and Nokia has not changed dramatically. They are going to need to become a software company. A full-face touchscreen phone has software buttons, it is 90% software.
Anonymous

@bhairavpardiwala

My own experience is of Nokia phones being quite fragile, with light knocks causing the screen to fail, even when light enough to cause no external damage to the phone.
Anonymous

A third of it went to Symbian, according to Bernstein–as I note above. I’ll add another chart so you can see the break-down.
Anonymous

How about this: try NOT dropping your phone from a balcony.

If I drop my iPhone, my digital life does not flash before my eyes because there is no unique data on there. The data actually lives on my Mac. What is on the iPhone is a throwaway working copy. The iPhone can disintegrate into dust and I just have to plug a new one into my Mac and sync once and I am back up and running with all my data intact. And my Mac backs itself up automatically in two separate ways: via Time Machine to a local disk array, and via BackBlaze to an offsite data center. And whatever contacts, calendars, emails, bookmarks, and other documents I may have made on my iPhone since the last sync with my Mac are synced with MobileMe. When I bookmark something on my iPhone, the bookmark appears within minutes on my iPad and Macs.

So the lesson here is you need rugged software to preserve your digital life. Any phone or computer can die and lose all of its stored data at any time, no matter how well-built or no matter how well-cared for. but if your data is on 8 separate devices it is not going anywhere, barring Armageddon.
http://www.facebook.com/people/Lig-Riv/100000846401146 Lig Riv

Right. So, assuming all this data is accurate…. Nokia invested twice the R&D money that Apple did, on things OTHER than Symbian.
Aaand, let’s not forget, Symbian is still most likely the number one OS – or no.2 if you believe Canalys, but I’d rather believe the activation number from Google. I’d be very interested to see the collective investment in Android – you know: Google + HTC (Sense) + Motorola (Blur) + Samsung + ZTE/ OMS, Tapas and so on.
Anonymous

Point taken. Post tweaked. New chart added.
Anonymous

I’d say Apple’s doing pretty well considering it spent less than a quarter of what Nokia did on mobile R&D.
http://twitter.com/usemeego meegouser

That’s because they have stolen Nokia’s patented technology without paying.
Anonymous

To each their own individual experiances
Anonymous

Do agree with you that a company’s cloud storage backup exist’s for this very reason!!!
but what the above point that i was trying to make was granted that people do have cloud backups but do even they come in handy once the entire device just goes bust?(i.e on the spur of the moment)
eg:-If a persons sitting and waiting for a delayed train (say the person may have a business meeting to go to and all contacts that are stored on the device just go because device is broken,granted anybody can recover the data to other device if it is backed up but what if the person really wanted to use that data for instance to call someone )in this instance as you said the contacts info can be assessed through cloud systems by just going to a near by cafe.but even those fail if the scenario is that instead of a station the person is actually travelling down a highway with no nearby cafe’s and then what He/She really finally depend upon is on how tough is the device built to withstand failure.Which finally boils down to what research has a company made to build tough phones!!!.
http://twitter.com/Phyx Phyx

You’re still looking at this from a software point of view, Nokia invests alot in the actual cellular technology.
demodave

I think there’s a valid point that John is raising. 17,000 employees and 2.9 billion Euros don’t appear to be accomplishing much compared to what Apple’s investment is accomplishing. To your point, this may be a short-term view (perhaps only an “appearance”, rather than a reality). But this same appearance has been noticed and commented on a fair bit, both in Digital Daily and elsewhere, so why not continue to publish it, as a commentator on the industry? Yes, it will draw hits. But that’s what any commentator wants (and is paid) to do.

That Nokia should invest in GSM and LTE is a bit of a red herring. It has to in order to due business in Europe – even to do business at all, not only for their own phones, but for the phones manufactured by other companies that Nokia’s customers may wish to call.

The cell phone industry today surely stands on the shoulders of technology that Nokia helped develop, but the expectations that many, many *-phone users have have been radically altered by what Apple did with iOS software (* = cell, feature, or smart, as you prefer), Yes, Nokia sells a lot of phones around the world, but at least state-side, the conversation today is about iOS and Android. That should concern Nokia.

The observations in John’s post speak directly to that. That content is not present in your reply, hence my former redacted reply.
Anonymous

“Apple Webkit” really is “KHTML”, or well, was, so don’t come here saying it’s the sole result of Apples labor, because it’s not. Sure they have helped improve upon it (in a fork …)

Can’t comment on the video and audio but I doubt Apple has made that much work in the area, even though the quicktime container may be theirs.

“The Web itself …”, wtf have you been smoking?
Anonymous

LOL, should be interesting to see how that turns out.

privacy-tools.au.tc
Anonymous

And even if Apple were found to have used Nokia’s IP, and paid a fee, that still would not change the fundamental story that Nokia is not monetizing their R&D spend, efficiently. Why change the subject and repeat yourself ad nauseum?
Anonymous

Yes, wonderful, and if WebKit were just KHTML, then why isn’t everyone else just using KHTML as opposed to WebKit?
Anonymous

You know what? People are clearly NOT valuing your balcony drop, because if they did, they’d be buying your Nokia, right?

Also, most iPhone users do backup their phones on a daily basis. Just about whenever you connect it to your computer to charge, it will sync, aka backup, to your computer. I can drop my iPhone with confidence that I have all my data on my computer. A replacement iPhone need only sync to put all of that back just like new. Why live with fear? Why live with your “whole digital life hang”ing over a balcony? Also, if your work were that precious, of course you’d back it up; otherwise, it clearly isn’t.
Anonymous

You’re right, ChKen, they should spend that money to become the number one phone provider in the world.

Oh wait… they are.

OK, the number one smartphone provider in the world.

Oh wait… they are.

OK, how about the fastest growing app store?

Oh wait… they have that.

Ok, what about investment in the next generation of signal infrastructure?

Oh wait… they’re doing that. None of the others are.

So… your point was?
Anonymous

Well, OK. Since R&D counts for nothing what if Nokia withdraw all the patents they’ve provided over the last twenty years.

What do you think happens then?

Hint: Just because it isn’t immediately visible doesn’t mean nothing is happening.

The US? You’re just five percent of the world. You ain’t all that.
Anonymous

Yeah… twice as many people bought Nokia smartphones as iPhone so maybe they do value construction though, hmm?
Anonymous

I rest my case with you by saying this story
Thomas Alva Edison took an innumerable amount of tries to invent the light bulb
What’s this story got to do with the current topic you ask?
For achieving any thing that no one has dared to achieve also takes innumerable attempts to make that thing a reality not every attempt is pure gold though and it is found that the more rarity of the thing the more it is difficult to achieve it!!!

now comparing this with the above statistics that John Paczkowski so kindly mentioned the stats just do not add up if one thinks only 3 things that is (bicycle charger,n8 and Symbian upgrade are the only good things coming out of it) in fact if anything these stats are even more the worrisome for all of Nokia’s opponents.All evidence in these charts seem to embarrassingly indicate that Nokia is definitely planning something big under the hood!!!
Anonymous

@John Paczkowski

So you seem to be comparing R&D spent on mobile, so only including Nokia’s Devices&Services R&D spend. The Bernstein chart however says it’s 2,9 B while in your chart and article you use 3,9 B? Where’d that extra billion come from?
http://twitter.com/allanwith Allan With Sørensen

I read recently that Blackberry was considering using Android’s Dalvik VM. That could be an interesting way for Nokia to gain access to a big catalogue of apps.

And 4 million N8 phones sold since October is acceptable if you look at it as a single phone model. In comparison the Galaxy S has sold 10 million since June. That’s almost an equal amount of phones sold per month.

Let’s see what happens when they start rolling out updates to Symbian^3, they might yet make a comeback, we don’t know yet. There is a big update with 50+ new features rumored for mid-2011, including UI changes, a new Qt-based web browser, etc. We might not have seen the fruits of those investments just yet.

I think Nokia should try to send out a slim and cheap Symbian^3 device without the GSM module to kind of seed the market, like the iPod does for the iPhone. Call it the S-series or something. How about an S8 with the same camera and other features as the N8, except GSM?

And how about selling devices directly to customers?
http://nextparadigms.com Lucian Armasu

Since when does Nokia have this fixation with software differentiation? It’s not like their phones have been bught because of the “awesome” OS they had so far. So I don’t know why they think OS differentiation is such a big for them. Their phones sell because of the hardware they build. But there’s not denying that people are buying more and more Android phones because they they think that even slightly less good hardware with Android is better than Nokia’s hardware plus a worse OS.

Now imagine if Nokia used Android on their phones. I’d say it would be an instant formula for success. Of course they can’t switch all phones to Android over night, but they can surely try to do that as fast as possible. It’s for their own good.
http://nextparadigms.com Lucian Armasu

HTC are on their way to beat Nokia’s profits by the end of the year, and they are a much smaller company.
Anonymous

5000 devs and 850m euro working to create that UI??? if they are still going with own OS. they need to recruit 50 best designers and let them lead a team of 200-300 best devs. kick all middle tier and let this team drive the product.
Anonymous

LOL, or maybe they just value cheap. Using the marketshare argument without pointing out that Nokia’s marketshare has dropped like a rock from a balcony, from the high 60s % to 28% last quarter, is just laughable.
demodave

You will never hear me say that R&D don’t count for anything. You will often hear mr say that results matter. The point of John’s article that I am agreeing with – even supporting – is that Nokia does not *appear* to be getting results from their investment.

Yes, I know my personal world view is heavily Apple-centric. That makes sense, because I am a user and an investor, but if nothing that I hear about Nokia’s phones even begins to interest me as a generic consumer, their investment is worthless. And clearly, since Apple is the second highest market cap in US trade, I’m not alone in my opinion.

iPhone transmission, apologies for brevity.
http://twitter.com/Clint_ZA Clint

Great to see a lot of those making comments giving these hacks hell. As stated it seems the day of publishing articles which were accurate are long gone. Now it is more a matter of expressing your personal opinion, adding credence to it by twisting the number and then calling it journalism.

Jumping on a crowded band wagon seems to be the easy routes for these hacks nowadays.

Give him hell guys! Unfortunately I sense that he probably just enjoys the attention anyway…
http://twitter.com/Clint_ZA Clint

Are you under the ignorant impression that Nokia phones are not able to sync and you cannot make back ups on your PC?

This ignorance does not surprise me but please tell me it is not so!
Anonymous

I am replying to someone’s post who is “under the ignorant impression that [iPhones] are not able to sync” blah, blah, blah. Clearly, you failed reading comprehension.

Your “ignorance does surprise me” and you don’t have to “tell me it is” so.
Anonymous

Nokia and Ericsson alone holds 2/3 of the GSM, UMTS+LTE patents while Qualcomm pretty much holds the rest.

Looking on figures it look pretty pathetic in R&D for ONE device made by Apple per year and HTC holding their cost down by just using OEM components and just designing and putting them together in their own assembly line no R&D.
http://martijnlinssen.com Martijn Linssen

Interested to see where you get the figures for R&D spent on iPhone – as it’s not in the annual report

What is in the annual report, however, is an R&D of $1.782 billion – not $0.8 as you seem to be suggesting
http://twitter.com/NotRahmEmanuel NOT RahmEmanuel

Tim Berners-Lee famously used a NeXT computer. That company was started by Steve Jobs after he was forced out of Apple Computer. The NeXT operating system was later used by Apple – not coincidentally, after Jobs’ return – to create the first version of OS X.

That being said, claiming that OS X itself played a significant role in creating the Web is the kind of grandiose crap that only a rabid Apple chauvinist would fetch up, for public consumption. You might as well say India Ink created the United States of America.
http://twitter.com/a_cross Allen Cross

“The US? You’re just five percent of the world. You ain’t all that.”

Sadly, the world’s smart phones markets seem to be proving otherwise. Not only have US companies set a definitive trend in design and concept, they have successfully re-invented the markets from their original focus on hardware to a new focus on software. That’s where Nokia blew it. They missed the change and went right on presuming great hardware would carry the day.

Say what you will, but the US is still the biggest smart phone market. And now Asia and India are coming up fast. You might even say it’s now Europe and European tastes which “ain’t all that”…at least, that’s what the numbers tell us. From the world wars to technology markets, you have to admit it’s funny how all those glory years of colonial expansion keep coming back to bite Europe in the ass. ;)
Anonymous

Except EMEA is actually the biggest smartphone market, not North America.

Carry on.

Not Seeing Much Return on That Massive R&D Spend, Are You, Nokia?

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