John Paczkowski

Recent Posts by John Paczkowski

Want to Be Relevant Again, Nokia? Buy Palm.

nokpalmOver the past few years, Nokia’s dominance of the smartphone market has been steadily eroded by competition from the likes of Apple (AAPL) and Research In Motion (RIMM). In its latest quarter, the company’s smartphone market share slipped to 35 percent from 41 percent.

With Motorola (MOT) and HTC building some compelling new Android devices and a new iPhone presumably on the way, there’s no telling what Nokia’s market share will be this time next year. The company desperately needs a worthy super-smartphone contender (it’s clearly not the N900 or N97) or it will end up reducing forecasts for market share and profitability in perpetuity.

So what should Nokia do? Wedge Partners analyst Brian Blair has a suggestion.

Nokia should buy Palm (PALM)–for its webOS operating system and for the guy who quarterbacked its development, CEO Jon Rubinstein. And then the company should abandon its Symbian and Maemo operating systems–Blair dismisses them as “inferior” and “lacking polish and smoothness”–and build just a handful of smartphones, all based on Palm’s webOS.

“You need each other,” Blair explains in an open letter to Nokia’s leadership. “You have the manufacturing and distribution capabilities and global carrier relationships and Palm has the second best operating system behind the iPhone. Alone, it will be difficult for Palm to ramp globally and compete with the top players largely because it takes meaningful marketing dollars to ramp units across global carriers especially while you remain focused on R&D efforts. You, by yourself, will cede market share to your competitors each quarter as smartphones become a larger part of global handset sales and you fail to offer a compelling offering in that category.”

Continuing his evaluation, Blair says, “I know you said you expect flat market share in 2010 but that isn’t going to happen if you don’t act. I think you could lose 10% of your share by the end of 2010 to your competition, taking your global share under 30%. However, together, as a unified company the two of you would rock the foundation of the handset industry and create real worry for your competition because each of you bring critical elements to the table that the other lacks and you would be a powerful force complimenting each other’s strengths and addressing the other’s weaknesses.”

As Blair notes, stateside carriers might not have been so quick to dismiss the N900 and N97 if they had run webOS. And developers might not be so hesitant to write apps for webOS if the market for them was as vast as Nokia’s. Finally, with Palm’s market cap at around $1.6 billion and Nokia’s at nearly $50 billion, the Finnish phone maker could easily figure out a way to finance an acquisition.

Interesting proposal, yeah? Tough to see Nokia adopting it, though. The company has been pushing Maemo pretty hard lately. And it wasn’t so long ago that it invested some $410 million in Symbian and released it as a royalty-free open mobile platform. It seems unlikely that the company would simply dump it now. Even more unlikely when you consider that Symbian is by far the world’s leading smartphone software platform.

But you never know. Anything’s possible. And remember, it wasn’t so long ago that Nokia was making rubber boots.

UPDATE: Looks like Blair’s assessment of Palm’s market cap is off, and by quite a bit. The company’s fully diluted shares number at least 236 million. With Palm shares trading at $11.73 as I write this, the company’s market cap is $2.7 billion, not $1.6 billion as Blair suggests.

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