Why Nokia’s latest Asha smartphone success won’t do much to address its bigger problems

At the end of a rough year, Nokia has seen what it thinks is some good news in its fourth-quarter earnings: Buyers are snapping up its cheapest smartphones. Nokia sold 9.3 million of the low-end Asha smartphones that it introduced in December 2011, up 50% per cent from the previous quarter, as against 4.4 million of its flagship Lumias.

In terms of pure earnings, this may indeed be good news. Nokia’s stock fell 18% in 2012. And the Finnish company, which remains the second-largest cell phone manufacturer in the world by units sold (after Samsung), has had a difficult time competing with smartphones running Google’s Android software from Samsung and others. Nokia slid fast from third place in the smartphone market, in the second quarter of last year, to a current seventh place. That leaves it with 4% of the smartphone market (a subset of the overall cell phone market), compared with Samsung’s 46%, and Apple’s 35%.

Nokia’s early Lumia smartphones have had trouble competing with Android handsets. Some of the Android smartphones are priced lower for emerging markets and their software proved more flexible and popular with developers than Lumia’s Microsoft Windows operating system, or its predecessor’s Symbian operating system.

Now the Asha phones are gaining more traction. They’re a low-end smartphone offering, sort of a bridge between feature phone and smartphone. Feature phones are less sophisticated than smartphones when it comes to running software and accessing the Internet, and as a result generally cost less to buy and use. Some have described the Ashas as souped-up feature phones “masquerading as smartphones.” Undoubtedly, a big appeal of the Asha, which comes equipped with WiFi and 3.5G connectivity as well as pre-loaded software for accessing social networks, Nokia Maps, and a version of Angry Birds, is its low price: the cheapest models retail around $62.

The Asha phones are selling particularly well in India, where Nokia still sells more cheap feature phones than any other company. Nokia commands 22% of the Indian feature phone market, compared with Samsung’s 13%, yet the figures are practically reversed when it comes to smartphones, with Samsung at 50% market share compared with Nokia’s 11%.

India’s devotion to Nokia, which seems to be the company’s best hope of late, is shared less and less by other countries. In China, the high-end Lumia 920 sold out within 20 minutes of hitting stores, and Nokia has a brand-new partnership with China Mobile, the country’s biggest operator. But the phone maker dropped from being a dominant player, with 30.2% of the general mobile phone market in mid-2011, to 6.4% a year later, and only 2% of the market by the third quarter of 2012. China, now the world’s largest smartphone market, is arguably more mature than India, with deeply entrenched Android users who are rapidly abandoning feature phones in favor of smartphones.

The bottom line for Nokia seems to be that it is growing its market share in a shrinking market for feature phones and low-end smartphones: due to diminishing costs and an increased diversity of offerings, traditional handsets are fast being replaced by smartphones and now constitute only 17% of global phone revenue. Smartphones, on the other hand, have gone from 37% of global market share in 2009 to 54% in 2010, 70% in 2011, and 83% in 2012, by unit volume.

There’s revenue to be had from this scenario, but on its own it leaves Nokia with only a shadow of its former global market presence.