Perhaps the biggest surprise in the new Gartner 4Q12 report was how steep the feature phone volume decline was in 4Q12. The -19% decline from previous year left the global volume at 264 million units. At the same time, smartphone volume grew by 38% to 208 million units. This presents a particular challenge for Nokia, a company that managed to keep its feature phone volume decline in check during the year 2012 via market share gains.
For the past two quarters, Nokia's annualized feature phone volume decline has been -15%. In 4Q12, this left Nokia's feature phone sales at 80 million units, down from 94 million units in 4Q11. Nokia has been able to leverage its new Asha series of feature phones to manage the decline and maintain decent profitability of a shrinking product segment.
But here's the problem: while Nokia's device sales grew faster than device volumes in affluent markets of Europe and North America, sales were weaker than volume growth in the important emerging markets of Middle East/Africa and Latin America. In Middle East/Africa, device volumes grew sequentially by 14%, but revenue only 9%. In Latin America, device volumes grew by 3%, while revenue actually shrunk by -9%.
Why is this important? Africa and Latin America are particularly feature phone-heavy markets. They tell us how Nokia's feature phone strategy is working. Looking at sequential changes between 3Q12 and 4Q12 tells us how Nokia's feature phone business is trending in some of the most important low-income markets right now. Because Nokia is collapsing in China, the combination of Africa and Latin America now makes up 33 million units of Nokia's entire 86 million unit phone sales base.
And the 4Q12 revenue news from Nokia's African and Latin American feature phone heartland was ominous. Several new Asha 200 and Asha 300 series models were ramping up during the Christmas quarter. Models costing 60-90 euros, which is far above Nokia's overall feature phone ASP. Why was Nokia's pricing performance so weak in Africa and Latin America during the last quarter, even as sequential volume growth was OK? Why didn't the new Asha roll-outs help? These are markets where Apple is almost a non-entity - the iPhone market share in Brazil is below 3%. The real threat here is how rapidly the low-end Android ASP is dropping.
The global feature phone volume decline may simply be turning too steep for the Asha strategy to overcome. Once consumers buying 70-100 euro, premium feature phones start defecting to Google's cheapo Android army en masse, the only way for Nokia to keep its feature phone volume slide in check is to cut prices of 30-60 euro phones aggressively. That in turn would be a real operating margin headache. The next two quarters will tell us whether the 4Q12 pricing issue in Africa and LatAm was just a wobble. If it wasn't, Nokia really needs to speed up the launch of sub-120 euro Lumia smartphones. That is widely expected to happen in 2014.
