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Comment by avner | Hacker News Reader

Stephen Elop has finally put in writing what the market has said about Nokia ever since the iPhone came out. Props to him for finally initiating this intervention at Nokia; it has been long overdue. Someone has finally said "we have fucked up, its now time to get back on the horse and make it right" to the Nokia management.

Less than a decade ago, nobody could touch Nokia in the mobile handset market, Nokia defined quality... and then they got complacent and instead of innovating, they stuck to old principles. Its like Nokia witnessed the age old fable of the tortoise and the hare firsthand.

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Your comment and Engadget's article seem to imply that Nokia failing in the smartphone market means that Nokia is failing generally. But wouldn't Nokia still be making a lovely profit even if they stuck to the more vanilla phones?

Don't forget that only a fraction of people can afford these >= £500 devices and only a fraction of those buy them without financing.

Nokia used to be up around 60% of the mobile phone market (in terms of profit). Now they're around ~20%, while Apple is more than 50% (on less than 5% marketshare).

Nokia is still making money, but pretty much all new profit is going to everyone else (especially Apple).

http://www.freerepublic.com/focus/f-chat/2666565/posts

Do you think there is a fixed "profit" out there for the taking?

Apple's profit margin is an extreme aberration, and it isn't sustainable. Any comparison that relies upon profit numbers is...disturbed.

Do you think there is a fixed "profit" out there for the taking?

Definitely not. But I do think that there's been incredible growth in Nokia's core business, and they haven't seen any of the growth.

Apple has been able to do this in four markets now:

1) iPhone -- a carrier subsisized market.

2) iPad -- see (3)

3) iPod -- Large margins based on industry leading large volume.

4) Computers -- Expensive niche product with huge margins. I believe the are the single most profitable computer company (if you look just at their computer division).

Why is a comparison based on profit disturbed? In business that's pretty much the only thing that matters. Profit yesterday, today, and tomorrow.

Apple has been making similar margins on all of its products for the past 10 years. How can you say it isn't sustainable?

10 years ago Apple had 5 billion in revenue. Now they're pushing 100 billion in revenue. They butting in on competitors who operate in the 5% margin range, and who are all desperately starting to claw back at Apple's gains.

No, it isn't sustainable. History will prove me out, and in 3 years I would bet that Apple has seen a significant margin haircut. Quote me on a 50% decline.

As a comparison, by the way, look at Sony (which was the Apple before Apple). Once a purveyor of high margin audio equipment, they saturated that market and started moving to high markup mobile audio equipment...and then TVs...and then lower markup mobile equipment, etc, and then everyone started fighting back.

Apple is exactly following the Sony curve.

EDIT: Arrowed down. This is one of those seminal moments that speak volumes about a community, and I think HN is done (just furthering an observation that has grown). Account and site abandoned.

Apple and Sony do share some similarities, but at least one big difference exists... Sony focused on licensing technology, from CD to BetaMax. Whereas Apple is creating a walled garden to lock in customers.

Sony eventually got commodotized in the very technology they created. This won't happen with Apple. At worst they get undercut in their industry, but Apple has a rich ecosystem that has to stay with Apple to reap the benefits.

And just for the record, no downvotes from me.

No, Sony tried to lock-in as well, e.g. Memory Stick, Minidisc, etc. Sony anything worked better with Sony anything-else. You saw this in the marketing too, SonyStyle etc, you could buy every electronic device from them and they'd all integrate nicely. Exactly like Mac, iPod/Pad, iTunes, AirPort, AirTunes, AppleTV...

It's a very easy bet that their profit margin is not sustainable. Obviously it won't survive the heat-death of the universe, nor the sun's expansion into a red giant.

The most contentious statement you made, to me, is "any comparison that relies upon profit numbers is...disturbed."

Why is profit a disturbing business metric?

You're still thinking in terms of hardware and devices. Elop's memo clearly shows that he comprehends the challenge. It's not the hardware. It's the ecosystem that matters. Think iTunes, App Store, MobileMe etc. Why do you think Apple is building a data center in NC? They're skating to where the puck's going to be.

One downvote on a site where the voting arrows are tiny and close together and votes can't be reversed is a "seminal moment that speaks volumes about a community"? I think you're being a little melodramatic.

Anyway, Apple has always had a disproportionate share of any market it seriously participated in — the big difference is that 10 years ago Apple was a very small part of a single market. Some fluctuations will probably happen over the next half a decade, but you can bet that Apple will remain absurdly profitable in a way that embarrasses most of its competitors. It's just something that Apple is good at.

you can bet that Apple will remain absurdly profitable in a way that embarrasses most of its competitors. It's just something that Apple is good at.

I'm betting it's not. It's something Steve Jobs is good at.

|EDIT: Arrowed down. This is one of those seminal moments that speak volumes about a community, and I think HN is done (just furthering an observation that has grown). Account and site abandoned.

Wow seriously, overreaction much? I don't know how long after you edited your comment but you're +8 now. It seems a little petty to dismiss all of HN because your comment was downvoted. Big deal. You just have to put up with some downvoting and realize not everyone is always going to have the same opinion as yourself.

My guess is you'll be back tomorrow or the next day judging by your comment history.

EDIT: Arrowed down. This is one of those seminal moments that speak volumes about a community, and I think HN is done (just furthering an observation that has grown). Account and site abandoned.

I would say please don't let the door hit you in this ass on your way out, but you are a bog-standard troll and will be back again next week whining about Apple.

that was not necessary.

Apple looks for market segments where they can sell things at high margins, and abandons the segments where those margins are no longer sustainable.

Dell laptops start at about $400. The MacBook starts at about $1000. If you only want to spend $400 on a laptop, Apple doesn’t want your money. If you want to spend $400 on an MP3 player, on the other hand, you can get a very nice iPod.

> Apple's profit margin is an extreme aberration, and it isn't sustainable. Any comparison that relies upon profit numbers is...disturbed.

So the goal of a phone maker should be to sell as many devices as possible regardless of whether they're profitable? That sounds a lot like, say, Motorola before they adopted Android - not exactly a picture of a healthy business.

While I got schooled on some apple market share figures earlier today -- the IDC report that ZeroGravitas links to here: http://news.ycombinator.com/item?id=2192345 points out that Apple have 21.6% of the Australian market. (That's total market, not just smart-phone and not just profit)

The memo directly addresses how Nokia no longer owns the medium or low-end of the market either.

They're being squeezed by smartphone tech making its way down towards mid-range 'featurephones' (i.e. a cheap Android handset easily beats a mid-range Symbian featurephone), while the low-end stuff is becoming a commodity churned out by Chinese OEMs.

There is no such thing as "Symbian feature phone". Every Symbian phone is a smartphone.

> But wouldn't Nokia still be making a lovely profit even if they stuck to the more vanilla phones?

Maybe. Until the smartphone market mostly cannibalizes the dumbphone market.

Then where are they?

> Don't forget that only a fraction of people can afford these >= £500 device

No - fairly good Android devices are already available for US$150 unlocked (see Huawei Ideos). In the next year they'll fall below $100 and after that they'll be coming free with your breakfast cereal.

Elop is absolutely right with his analogy of a burning platform - there's a very real prospect that within 2 years Nokia could be entirely wiped out from the low end market - down to single digit market share and making very little profit on those. It's nothing short of an existential crisis for them.

I know very little about the smartphone market, but in the console market, Sony were happy to sell the Playstation at a loss to get the hardware out there.

Is this what you are predicting for the smartphone arena? Having the hardware at increasingly lower prices in order to make money on the app sales?

Surely, this is the only logical conclusion if Nokia move into an app store-like closed marketplace?

That only works as long as the console makers mostly lock out unlicensed applications from their platforms. Only AT&T and Apple seem to be willing to take this route.

Now, we have tons of carrier-subsidized phones that come with a service contract. (You get a cheap phone, but you have to pay $80/month for the next couple years.) That seems to be where the money is in phones.

Although you'll not hear about it on Engadget (as it's not interesting to high-end gadget hounds, they barely mention the low-end Androids, which are high-end by world standards), Nokia got demolished at the low end by a bunch of companies you've never heard of. It was basically coincidental that at the same time they missed the bus on the new portable computer (with phone capabilities) market that Apple invented.

Pretty bad luck for a company that was raking in billions selling lots of different low-cost phones to developing nations (which you wouldn't even believe is possible if you went to the John Gruber School of Business). Unfortunately those billions insulated them from the shocks, much like Microsoft happily ignored the internet for years. But the perfect storm of Apple, Android and low-end commodity competitors hit them hard from multiple directions (nice hardware, open ecosystem, low prices were all previous Nokia advantages).

Elop mentions it though, so at least Nokia is aware of the problem: "Let's not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace. By some accounts, this ecosystem now produces more than one third of the phones sold globally - taking share from us in emerging markets."

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