Nokia, burning cash as it struggles to revive its smartphone business, is winning time for the recovery effort by gaining more customers for another product: basic mobile phones it sells for $39.
By adding features such as quicker Web and online games to its Asha handsets popular in faster-growing economies including India and China, Nokia boosted its share of the basic-phone market to 35% last quarter — the highest in two years. Unlike the smartphone division, the basic-phone business is profitable and unit sales are increasing.
The more than 70 million cheaper handsets Nokia sells each quarter is providing relief for chief executive officer Stephen Elop as he tries to stem revenue declines and recover from five quarters of losses.
The basic-phone division is also winning over first-time users who may stick with Nokia when upgrading to a more expensive device. “Nokia’s Asha models are selling quite well and that is good news for them since it gives the company a bit more time to get its smartphone business on track,” said Teemu Peraelae, who helps manage $1.5 billion including Nokia shares at Alfred Berg Asset Management in Helsinki.
Nokia’s cheaper phones outsold its smartphones 7-to-1 last quarter and, at 2.29 billion ($2.86 billion), brought in 49% more revenue for the Finland-based company. Shares of Nokia have advanced 66% since it reported second-quarter results July 19 and rose 2% to 2.32 at 12:18 p.m. Helsinki time, gaining for a sixth day. They are still down 89% since Apple introduced the iPhone in 2007, a debut that started Nokia’s decline in smartphones.
If Nokia’s smartphone strategy fails, the basic-phone unit may become the company’s most attractive asset for an acquirer because it remains profitable and has a dominant market position in many emerging markets, said Sami Sarkamies, a Nordea Bank analyst in Helsinki.
A buyer would also benefit from Nokia’s strong relationship with carriers in growth economies, he said. Nokia’s Asha phones are gaining users in the developing markets because they resemble smartphones, yet cost a fraction of the price, Anshul Gupta, an analyst at research firm Gartner in Mumbai, said in an interview.
Some Ashas have full-length touchscreens similar to Nokia’s higher-end models and Apple’s iPhone. The underlying operating system is less sophisticated, making them cheaper to build.
“They have almost all the features a smartphone should have like an application portal to download apps, a touch interface, social-networking integration — so these devices are completely like a smartphone,” Gupta said. Nokia added touch-screen handsets to the Asha line in June to meet the surging demand for smartphone features.
The Asha 305, retailing at 65, is Nokia’s cheapest full-length touchscreen phone. The Asha 311, featuring a faster touch screen and a 1-Gigahertz processor, costs 95. The company on average sells basic phones for 31 each, compared with 151 per smartphone. The 305 and 311 are seeing “fantastic traction” among customers, said Sathish Babu, who owns handset retailer Univercell with about 500 outlets across southern India.