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What the Heck Is Nokia Doing Wrong in China?

Friday - 4/19/2013, 5:15am  ET

New numbers came out yesterday for Nokia's sales in China -- and things aren't looking good. The company failed to benefit from a prime gift-giving holiday, and even the new Lumia 920T hasn't turned the tide in the country.

Nokia's been busy in China over the past few months, but unfortunately, not all of it has paid off. At the end of 2012, the company jumped on board with China Mobile to sell it's Lumia 920T, a move I thought would help the company. Having the China Mobile advantage could have boosted sales over the past few months, but apparently it didn't work out that way.


Source: Nokia.

Nokia announced its Q1 2013 numbers today, and the figures show device sales in China falling 26% from the previous quarter -- and a jaw-dropping 63% decline year over year.

Despite Nokia's 20-year history in the country, the company holds about 1% of the Chinese smartphone market right now. The company lost its 50% smartphone market share after Apple and Google swept in with its operating systems. With China recently taking the No. 1 spot as the biggest smartphone market, Nokia investors should be very concerned with the company's latest China sales.

So what the heck is going on over there?

Apple and Samsung are two fierce mobile competitors, and Nokia simply hasn't been able to beat them in China's high-end mobile market. That may be why Nokia is developing a cheaper line of phones for developing markets.

Nokia CEO Stephen Elop recently said at the World Mobile Congress: "There's a very large number of inexpensive and largely undifferentiated devices. We believe we have to offer differentiation at each price point." But Nokia already sells cheap phones in China, so believing that a new line of low-end phones will rebound Nokia's position in China may be wishful thinking.

Aside from Samsung and Apple, Nokia also faces challenges from local Chinese vendors. Data released by IDC at the end of January showed that Nokia didn't even make it on the top five smartphone vendors in China, and could beat out Chinese vendors Huawei and ZTE.

Nokia isn't completely dependent on China for its business, but the company's overall numbers aren't looking great, either. Nokia saw a loss of $196 million this quarter, and overall device sales were down 30% compared to last quarter. The good news was that Lumia sales were up 27% from the previous quarter, but that shouldn't be enough for investors to get excited about. The company has a long way to go before things will start turning around for its mobile offerings, and the competition is only getting more intense. Investors needed to see strong Lumia sales in China and the absence of that means that China is going to be an uphill battle for Nokia.

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This article was originally published as What the Heck Is Nokia Doing Wrong in China?on Fool.com

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