Nokia today announced its preliminary first half outlook for 2012 and as expected the near term performance is going to be disappointing. Nokia is in the middle of a major transition of product, culture and clock speed but should not be written off just yet. Wall St has inevitably overreacted to the short term without recognizing that the major impact of Nokia’s US renaissance will not hit until Q2 and Q3.

Nokia shipped a modest 83 million handsets globally in Q1 2012. The global volume-share has dipped to an estimated 22% in Q1 2012 from 41% during the iPhone launch year of 2007. Furthermore, the value metrics have disappointed as the cost and price erosion from the sunsetting Symbian volumes and heavy promotion of  Windows Phone Lumia series diluted the operating and gross margins  generated by the “high-value and high-profit” smartphone segment. The 12 million smartphone shipment volumes might be more than many of smartphone specialists globally but not enough scale to mint revenues and profits for a firm with operations as big as Nokia. We estimate Nokia’s smartphone marketshare to dip to roughly 8% in Q1 2012.

On the other hand, Samsung with a record profitable quarter is well positioned to surpass Nokia in the first half of 2012 as the leading handset vendor in terms of volumes for the first time ever in handset industry.

Samsung with its low-cost sub US$150 Android (Galaxy Y) smartphones and US$300 above premium superphones (Galaxy S2, Note) is attacking Nokia at top, whereas, Asian handset vendors such as ZTE, Huawei, Micromax and Karbonn are attacking Nokia at the bottom, basically engaging in a price-war lowering Nokia's dominance in feature phone segment in markets such as India, China and Latin America. Nokia is definitely stuck in a pincer movement here.

For Nokia, the decline in Symbian is happening faster than it (but not analysts) expected at the hands of Android and the vendor is eagerly waiting for the cross-over point when Windows Phone sales overtake Symbian which we expect to happen in Q4 2012.

For a giant company such as Nokia, the shift to a completely new strategy, 18 months old Windows Phone platform and positioning afresh successfully in the minds of consumers was going to be challenging especially against the four+ year old maturing Android and Apple platforms. While an important and difficult transition phase for the vendor was expected this year, we expect Nokia to hold the fort in its strategic partnership with Microsoft to catapult Windows Phone to become the third largest ecosystem and Nokia the third largest player in the smartphone race.

Nokia alone has already shipped more than three million Windows Phone handsets in four months with almost three models just across 36 launch markets globally out of 190+ markets where Nokia is present globally, to strengthen its position as the number one Windows Phone smartphone vendor.

Windows Phone 7x limitations in terms of including advanced components, technologies to the smartphones have been pulling back the much needed growth and traction for Nokia and Microsoft. We expect this to change with the next big update this year in terms of Windows 8 coupled with the growing developer support, appstore growth and growing distribution reach for Lumia handsets courtesy of Nokia’s broader distribution reach and prevalent brand awareness. Furthermore, Nokia’s new Lumia 900 and 710 smartphones are receiving positive reviews, sales traction and stronger drive period carrier support in USA. The USA is one of the most important smartphone markets in the world and it will set the tone for Nokia’s and Microsoft’s push for 2012 as a breakout year for  the Windows Phone ecosystem. 

In the near-to mid-term, Nokia will  continue to struggle to get the balance between legacy Symbian and Feature phone businesses and smart phones for the next generation right. The US market results for Q2 and Q3 will provide critical indicators of how successful Nokia will be while transitioning from even the most updated Symbian OS needs to happen even faster in BRIC markets. Overall, a tough but not entirely unexpected quarter for Nokia but there is some light at the end of the tunnel.