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Market research firm Canalys issued pessimistic comments about the future of Nokia netbooks following Nokia’s announcement of the Booklet 3G earlier this week (read here). Canalys foresees three major difficulties for Nokia in terms of distribution, price positioning and margins.



Distribution channels

While Canalys recognizes the Nokia brand and its strong relationships with wireless operators in Europe and Asia, the research firm notice that operators are a tiny fraction of the netbook market today. “operators only accounted for 13% of netbook shipments in EMEA in Q2 and the sector is crowded. For Nokia to drive volumes it will also need to make inroads into online and offline retailers, which is an expensive proposition.”



Price positioning

“Judging by the Booklet’s specifications and its aluminium case, Nokia will position it as a premium product, but it will be hard to sustain a high price point. Premium netbooks are a hard sell as their prices overlap with fully functional notebooks. Witness the Sony VAIO range, which has seen its share of mobile PCs in EMEA fall to just 2% from 4% over the last three years.”

Nokia also wants to use its Ovi services as a differentiation for this product range. But Canalys does not believe it will work. “Nokia has made no secret of its aspirations as a software and services company. Usage of Ovi services on Nokia smart phones, though growing, is still relatively low, even though the services are preconfigured and largely free on many devices. On a Windows PC Ovi will come up against established services, such as iTunes and Google Maps. Ovi is not a sufficient differentiating factor to drive Nokia’s netbook sales.”

Razor thin margin

“By choosing to launch a netbook running Windows, Nokia has positioned itself against established competition, such as Acer, Asus and HP”, explains Canalys. “These vendors operate on far lower gross margins – around 10%, significantly below the 34% Nokia enjoys in its phone business today. Furthermore, the high-volume PC vendors enjoy significant price advantages from both Intel and Microsoft. The only chance for Nokia, or any other vendor, to change the economics of the PC industry will be through an innovative non-Windows platform.”

“If it can announce an unsubsidised price of €350 to €400 then the Booklet has the potential to sell well. But Nokia would most likely then be making a loss – the leaner PC vendors are already struggling to break even at that price point.”

Canalys also recalls that Nokia who had a PC manufacturing capability in the eighties was forced to sell it to International Computer Limited (ICL) in 1991 because this activity was not compatible with its cost structure.