Nokia points to Android as biggest threat

Nokia’s chief executive has declared Android smartphones to be his main competitive target, in spite of data showing that Apple has overtaken the Finnish company to become the world’s biggest mobile phone maker by sales for the first time.

Apple generated $11.9bn of wholesale revenues from its iPhone in the first quarter, compared with Nokia’s $9.4bn of handset sales, according to estimates by Strategy Analytics, a research company.

The data highlights the challenge facing Nokia after it signed a final agreement with Microsoft this week to join forces in the smartphone market.

However, Stephen Elop, chief executive, said that, while the Microsoft pact would help sharpen Nokia’s response to the iPhone, the main focus was on the broader range of rivals, such as Samsung, HTC and Motorola, which use Google’s Android operating system.

“We’ve been very clear that our number one competitive consideration is Android,” he told the Financial Times.

Android phones are projected to increase from 23 per cent of the smartphone market last year to 39 per cent this year and nearly half in 2012, according to Gartner, the research company.

Nokia’s share, in contrast, is forecast to dip below 20 per cent this year as it makes the risky transition from its own much-criticised Symbian operating system to Microsoft’s Windows Phone. Nokia and Microsoft hope that, by teaming up, they will be able to compete more effectively with Android and Apple than they have so far done separately.

When the deal was announced in February, some critics argued that Microsoft stood to gain most by winning access to a big new distribution channel for Windows Phone, with Nokia paying royalties for the software.

However, Mr Elop insisted the deal also included attractive financial rewards for Nokia, with Microsoft due to make payments worth “billions of dollars” to its new partner for adopting Windows Phone.

“We are making a commitment to do our best work for the Windows Phone ecosystem whereas other [handset makers] are doing their best work for Android,” Mr Elop said. “The very fact we are making that decision is very valuable [to Microsoft].”

In addition to expected revenues from the deal, Nokia has set a target to save €1bn ($1.4bn) a year from 2013 by reducing its own software development costs. Talks are due to start with unions next week on the planned restructuring, with labour leaders predicting thousands of jobs could go.

Mr Elop highlighted intellectual property rights as a key asset in Nokia’s turnround efforts and vowed to use the group’s extensive patent portfolio more “strategically”. He refused to comment on whether Nokia might be drawn into a dispute with Google similar to its legal battle with Apple over alleged patent violations. But he noted that Microsoft had already filed a lawsuit related to software used by Motorola in its Android phones.

Analysts say Nokia and Microsoft could seek to raise costs for Android manufacturers by extracting licence fees for their patented technology.

Nokia lifted the spirits of its long-suffering investors on Thursday with a smaller-than-expected drop in first-quarter profits. However, any optimism was tempered by a warning of further weakening in profit margins in coming quarters because of the tough competitive environment and supply chain disruptions from the Japanese earthquake.

Mr Elop said Nokia had sought alternative component supplies in countries such as Taiwan, China and South Korea but insisted the company would not abandon Japan.