Nokia's stock price recently saw a major boost when it announced its preliminary results. The biggest driver for this boost was better than expected performance of the full touch Asha range in emerging markets, which Nokia has been attempting to market as "smartphones". Many analysts have agreed with Nokia, arguing that the average selling price (ASP) of the Asha range is higher than low-end Android devices. Let's take a look at why that may be a little out of touch with reality.
Basis of CompetitionTo understand why the ASP argument doesn't hold any water, we first need to understand what the basis of competition in low-end markets is and how it will change over the next few years. The basis of competition is essentially the product features or characteristics that appeal most to consumers in a given product category. It is important to note that the basis of competition is most likely the product feature that is currently underperforming related to market expectations. However, as product performance improves to meet market expectations, the basis of competition shifts to other features.
Because of the sub-par hardware currently driving low-end smartphones (especially Android devices priced in the $50-$100 range), the performance of these devices (in terms of fluidity & ease of use) is currently below expectations. This implies that fluidity/ease of use is the basis of competition in this market. As a result, many customers still treat these devices as "non-smartphones", which is exacerbated by expensive data plans. This puts Nokia's full-touch Asha range (priced above $100) in direct competition with these low cost Android devices - where it has performed fairly well. However, this isn't a long-term solution.
Component prices drop at a very rapid rate and this ensures that next year's devices perform better than this year's, i.e. this year's mid-range devices are next year's low-end devices (most likely accompanied by a fall in data rates). Therefore, as the new low-end android devices achieve performance comparable to Nokia's Asha devices and data rates fall, the basis of competition shifts to application availability, i.e. the ability to use a smartphone as a pocketable computing device. Unfortunately, this is where Nokia's Asha devices lose out. The Symbian S40 operating system isn't exactly considered to be much of a "growth platform" by application developers, so it is unlikely for their application base to see any growth. Nokia's strategy is to then use begin to use Lumia devices to target the low-end market, but by then Android devices would have attained performance-parity and would continue to hold a cost advantage. This is one reason why Nokia should have used cheaper Lumia devices to target today's low-end market.
In this situation, Nokia's Asha range is unlikely to be perceived as a smartphone by buyers, while low-end android devices will continue to be seen as smartphones, irrespective of ASP. This is the core issue that many analysts seem to ignore.