Low-end smartphone battle seen forcing Nokia to Android

Nokia is reportedly working on its own version of Android, but it faces an uncertain future when Microsoft takes over

With Nokia reportedly working on its own version of Android for use on low-end smartphones, the company needs Google's OS to able to compete in that increasingly important segment of the market, according to Informa principal analyst Malik Saadi.

The smartphone market is going through major changes as the primary driver for growth in the years ahead will be low-cost devices. For Nokia this segment of the market initially helped the company keep sales volumes up as the Lumia family struggled. But that changed this year as Nokia hasn't been able to compete with an avalanche of cheap Android-based smartphones.

To counteract this threat, Nokia has been working on its own version of Google's OS, which will be based on the open source code of Android but come with its own user interface and services, according to multiple reports.

This would allow the company to bridge the price and performance gap between its current line-up of Asha devices and the Windows Phone-based Lumia family, Saadi said.

It isn't Google that has made life difficult for Nokia, but chip vendors like Qualcomm and MediaTek.

"The reference design programs they offer make it much easier and cheaper for new entrants in the smartphone market to develop low-cost Android-based smartphones, that can outcompete Nokia's products," Saadi said.

The reference programs provide a one-stop shop that includes the tools and resources device manufacturers need to need to quickly and cheaply put out devices, according to Qualcomm. The quality of the products have improved immensely, said Johan Lodenius, chief marketing officer at MediaTek.

By switching to Android, Nokia would be able to take advantage of these programs instead of getting run over by them, according to Saadi.

What happens to Nokia's smartphone portfolio will soon be up to Microsoft; the company's acquisition of Nokia's Devices & Services business has been approved by shareholders as well as by European and U.S. regulators. The deal is expected to close in the first quarter of next year.

As soon as possible after the deal has closed Microsoft has to decide how it wants to address the low-end smartphone segment. The best option is if the company could lower the cost of Windows Phones to below US$100, according to Roberta Cozza, research director at Gartner. She believes it is unlikely that Microsoft will put out Android-based phones.

One of the problems Microsoft has to contend with is how to hold on to users when they want to buy a more expensive phone. If they choose Android, users may choose to upgrade to a Galaxy smartphone from Samsung Electronics, instead of a Windows Phone. But if, as has been reported, Nokia adds a user interface on top of Android that looks like Windows Phone, such a scenario could be avoided, according to Saadi.

Meanwhile, downward pricing pressures continue. As part of Android 4.4 Google has kicked off "Project Svelte," an effort to reduce the memory needs of Android so it can "run comfortably" on entry-level smartphones that have as little as 512MB RAM. Regardless of which path Microsoft takes, the battle for supremacy below $100 is only going to get tougher.

Send news tips and comments to mikael_ricknas@idg.com

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Mikael Ricknäs

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