John Paczkowski

Recent Posts by John Paczkowski

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

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.”

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