Nokia tightens innovation focus

Warc, 28 January 2013

HELSINKI: Nokia, the telecoms group, is focusing its innovation activity on creating devices and product features which are differentiated from Apple's iPhone and handsets powered by Google Android.

Stephen Elop, Nokia's chief executive, told analysts that the firm's emphasis over the "longer period of time" is to ensure its Asha brand and portfolio of devices running on Microsoft's Windows Phone operating system stand out.

"Clearly our principal investments from an R&D perspective, as we have transitioned into someone who uses the Windows Phone platform is focused on differentiation [and] focused on capabilities that are new or unique on the Windows Phone platform," he said

Driving up gross margins are a major objective informing such a strategy, and this area will thus form a core metric for measuring the success of Nokia's research and development output.

"Our R&D productivity ... is now far more focused on differentiation than historically it was, whether it's a large component or it focuses on just the underlying plumbing of operating systems," Elop argued.

Gross margins on "smart devices" rose from –3.5% to 18% in the last quarter on a sequential basis, aided by a "positive mix shift" towards its Lumia range.

More specifically, Elop said Windows Phone 8 has attracted more developers than Windows 7 due to its superior features. Nokia was also an early adopter of the Windows 8, unlike the seventh iteration.

It thus had opportunity to "add capabilities that gave us unique points of differentiation, not in the context necessarily the Windows Phone ecosystem, but even relative to Android or relative to Apple," he added.

These included handset design, as well as tools like photography and location-based services, showing mobile operators it is possible to build a "third ecosystem" challenging Apple and Google.

"Operators today are more engaged, more invested and more participating in the conversations about how do we take the Windows Phone ecosystem to create more balance for them from an overall strategic perspective, and of course always for the consumer, who makes the ultimate decision about these things," Elop said.

Alongside more high-end lines, the Asha brand and the planned future development of Windows-based devices will try to serve consumers at lower price points to rival cheap Android devices.

"We are clearly innovating with Microsoft around Windows Phone and our focus on taking that to lower and lower price points, you will see that over time to compete with Android," Elop said.

Data sourced from Seeking Alpha; additional content by Warc staff