Samsung catches up with Nokia fast in the Indian mobile phone market

Samsung catches up with Nokia fast in the Indian mobile phone market

And, the pain won't go away soon. Samsung's Goliath-beating journey in the Rs 55,000-crore mobile phones business is as much luck as nose-to-the-grind execution. The luck was in the call it made two years ago on smartphones.

Business Today received a clarificatory e-mail from Nokia on 'How Samsung Moved Nokia's Cheese', dated May 27, 2012. Edited excerpts:

"Your cover story reports Samsung has overtaken Nokia in March 2012 in value terms. We would like to highlight that this is incorrect. The data that you have used in the article quotes only Urban retail sales data from the GfK-Nielsen survey and is misrepresented as All India data. GfK-Nielsen's Urban data covers 793 cities and towns each with population more than 50,000, while its All India coverage is of 4,378 cities and towns and 586,000 villages.

According to the All India data from GfK-Nielsen for March 2012, Nokia is a clear leader of the overall Indian mobile handset industry - both in value and volume terms respectively. Unfortunately, we are legally bound not to share market data from GfK-Nielsen.

This story has had significant negative ramifications on the Nokia brand in India and the trust our consumers, partners and other stakeholders have in the brand, besides impacting the morale of 10,000 Nokia employees.

Poonam Kaul, Director, Communications, Nokia India

Business Today responds:
The conclusions in the story were based on Urban data from GfK-Nielsen, a highly respected but confidential source for market sales numbers. Business Today followed best journalistic practice in this story, as it does with all its reporting, and contacted all sides for their versions. Neither Nokia nor Samsung clarified that the data we ran past them was urban-only; GfK-Nielsen declined comment. We have subsequently learnt that Nokia leads Samsung by 1.4 percentage points in All India market share (31.7 per cent vs. 30.3 per cent) in March 2012. The Urban data we used in the story had Samsung ahead by 0.4 percentage points in March 2012. We have learnt that in GfK-Nielsen's methodology, Urban sales account for 55 per cent of All India data in volume terms and about two-thirds in value terms.

We also erred in saying the Urban data was sourced from 50 cities and in mis-labelling March 2012 data as March 2011 data. We regret the errors.

The Editor

Samsung knocks the wind out of Nokia

For nine quarters, it has been a downward slide for Nokia in India. The Finnish phonemaker's vice-like grip on the India market has been slowly yet surely prised open by a raft of old and new rivals. Nokia ceded nearly half of its dominant share of the mobile phones market from a peak of 70 per cent between 2007 and now.

Even in context of this spectacular slide, Tuesday, April 24, was particularly gut-wrenching for Nokia. Data from market tracker GfK-Nielsen that came in that morning showed its nearest rival in India, Samsung, had achieved the seemingly impossible. The Korean brand, for the first time ever, had overtaken Nokia in India by retail revenues in March capping months-long game of steady catch up (see Slugging It Out).

Ranjit Yadav
Ranjit Yadav, Country Head, Mobile & IT, Samsung India
What stung Nokia was this: by the number of mobile phones sold, Samsung was trailing Nokia by a wide margin. In other words, Samsung was registering higher revenues in India than Nokia by selling fewer phones. Samsung held a 34.2 per cent share of mobile phone retail revenues in March 2011 versus Nokia's 33.8 per cent, according to GfK-Nielsen. (The market research firm estimates revenues of brands by surveying their sales at the retail level.) This, despite nearly a 10 per cent gap in volume sales between the two: Nokia's 36.9 per cent versus Samsung's 27 per cent.

The data was greeted with expected cheers at Samsung's India headquarters in Gurgaon, a satellite town overridden by offices southwest of capital New Delhi. There was much back-thumping and plans made for an evening party.

  • Samsung is the world's largest phone maker with25.4 per cent share

  • Out of 50 models, 19 Samsung models are smartphone

  • Samsung Mobile & IT made Rs 11,000 crore in India in 2011

When key members of his team reached the office of Ranjit Yadav, who heads Samsung India's mobile and IT division, the mood sobered a bit. "This is good but we need to build on this," Yadav told his team members, says an executive who was present. Yadav, 49, is as distanced when BT meets him. "This business is as good as you are everyday. We are still challenging," he says.

To be sure, as Yadav told his team, it is early days. It is just one month that Samsung has edged ahead of Nokia in retail revenues. For 2011, Nokia's share of retail revenues from mobile phone sales is still a good 13 percentage points ahead of Samsung's (39.8 per cent and 26.8 per cent). And, in volume sales, the lead is even more 16.1 percentage points. Further, this estimate is from just one among four market trackers. GfK-Nielsen surveys retail sales in 50 cities reflecting market realities better, while others such as IDC, Gartner and Cyber-Media Research base their estimates on shipment data from the phone makers.

Even discounting for such factors, it is clear that Nokia is in a bad shape and it seems a matter of time before Samsung pulls firmly ahead. "If Nokia does not do anything drastic, the rate at which Samsung is growing, it will overtake Nokia by the end of 2012 even in volume sales," says a Gurgaon-based analyst who does not want his or his employer's name taken. This has already happened globally. Samsung, for the first time, outsold Nokia in the January to March quarter (93.5 million phones to 82.7 million).

The Samsung Roll
Samsung India's Goliath-beating journey in the Rs 55,000-crore mobile phones business is as much luck as nose-to-the-grind execution. The luck was in the call it made two years ago on smartphones. (Such phones typically come loaded with a camera, access to the Internet, media player, games, social media applications, and other features. They are different from so-called feature phones that are more basic in functionality and inexpensive in comparison.) Smartphones account for over 11 per cent of all mobile phones sold in India, up from just six per cent a year ago and virtually zero before that. Look at its revenues and it is even more promising: Rs 15,000 crore in 2011.

It is in this chunky and profitable category that Samsung has carved out a comfortable space for itself. GfK-Nielsen puts Samsung's share at over 43 per cent of the smartphone market in March's volume sales compared to the 29 per cent of Nokia. This is in line with the trend of the last two years. While Samsung grew its share in smartphones to 26.7 per cent in 2011 from 4.9 per cent the year before, Nokia saw its share shrink from 83.5 per cent 46.1 per cent.

Such market-disrupting growth by Samsung India can be traced to a global bet its parent made on Android, the open source mobile operating system championed by Internet search giant Google, as late as 2009. Samsung developed phones for different operating platforms such as Symbian, Android and Windows Phone, as also the proprietary 'bada' platform. But, it turned out to be the biggest gainer on the Android platform: it has an over three-fifths share of Android phones globally and a share of 42 per cent of all smartphones.

James Crawshaw, European telecom and technology analyst at S&P Capital IQ, is unequivocal about where Samsung is getting it right and Nokia wrong. "Nokia's success [lies] not in increasing market share but in increasing its smartphones portfolio," he says in a phone interview. Nokia's profits, he insists, need to come from highend phones like that of Samsung's Android phones. Ratings firm Standard & Poor's downgraded Nokia below investment grade in April.

D. Shivakumar, Senior Vice-President, Sales, IMEA
A new operating system is like a new religion: D. Shivakumar
The appetite in India for Androidbased phones became quickly clear in June 2010 when Samsung decided to launch its Galaxy phone. Nokia's smartphones were getting strafed in the market, the Apple iPhone was hardly here, and BlackBerry did not have a great touchscreen device. "We smelt the coffee. We shook up the product portfolio," says Asim Warsi, Vice President, Marketing, Samsung Mobiles. Galaxy offered the customer aspiring for the expensive iPhone an alternative with a great multi-touch interface, a large screen, and smart applications - at Rs 30,000. Samsung sold more than 100,000 Galaxys in the first three months, meeting what Warsi, an ex-Nokia hand, estimates was just half the demand.

Samsung quickly evolved the Galaxy series. It today has a portfolio of five Galaxy devices, ranging from Rs 7,000 for the Pocket to Rs 30,000 for the S2. The S3, globally launched May 3, will be locally priced around Rs 35,000. The speed with which Samsung introduced new models, set up new plants in India, and reached out to customers is part of the consumer goods-like battle plans drawn up by Yadav's team. He has kept a tight rein on costs, keeping the number of retail outlets selling Samsung phones at 90,000, less than half of Nokia's 200,000.

Nokia's competing smartphones were almost no match for Samsung's. It was not until February 2011 that a Finnish answer to the Galaxy came about in the form of the Lumia phone out of the Nokia-Microsoft tie-up in February 2011. The Lumia series received rave reviews internationally but sells just two phones in India - one at Rs 25,000 and a cheaper one at more than Rs 15,000. The devices are way too expensive going by prices Indians are used to, says Anshul Gupta, analyst at research firm Gartner.
Nokia Pads Up, Again
The months ahead, promise Nokia executives, will see the battleground change with new Lumia phone launches aimed at some traction in markets like India. The Lumia 610, for instance, expected to be priced under Rs 12,000, is set for a June launch. Mindful that selling Windows Phone devices can be a challenge in the distribution channels, Nokia has shortlisted some 5,000 stores, whose retail staff it is training, to sell the Lumias. "Consumers are looking for more than a device," says V. Ramnath, Director of Sales at Nokia India.

The issue of margins, the most important variable in any sales channel, too seems to be getting addressed. Mohammed Ameen, a Samsung distributor in Bangalore who until September 2011 sold Nokia phones, says: "For a particular price, if Samsung gives Rs 100 as margins, Nokia gives Rs 30. But now that is changing, Nokia has also started passing more margins to the trade."

"A new OS is like a new religion," D. Shivakumar, Nokia's Senior Vice President of sales for India, Middle East and Africa, indicating the market takes time to accept a completely new product line. He points to the 13 awards the yet-to-be-launched Lumia 900 won at this January's Consumer Electronics Show in Las Vegas as an instance of its ability to wow customers.

Nokia's push is clearly in the right direction because smartphones will only grow as a share of the overall mobile phones market. Technology consultancy Ovum predicts smartphones will outperform the overall market for mobile phones and sell 1.7 billion units by 2017. Still, the question is whether the Windows platform was the right choice for Nokia. Ovum forecasts Android will continue to dominate with a 48 per cent share five years from now, by when the Windows platform will account for 13 per cent. Insiders at Nokia scoff at remarks about the company being "bloated and hierarchical".

One such person is Vipul Mehrotra, Director and Head of Smart Devices at Nokia India. Mehrotra, who was earlier leading Nokia's service strategy at the company's Espoo, Finland-headquarters, says he was made the project lead for Lumia phones a day after the February 11, 2011 announcement of the Nokia-Microsoft tie-up. Then, he says with some pride in the first Lumia phone released in nine months: "We had to work at speed that Nokia had never worked before."

Other 'Nokians' like outgoing Chairman Jorma Ollila remind outsiders of the many changes Nokia has been through. In an interview with Financial Times, London published early in May, Ollila said he had seen at least five crises at Nokia in his three decades there. A company with a history in tyres to toilet paper, Nokia has had its highs and lows, indeed. Just as it ran the mobile phone businesses of rivals such as Ericsson and Motorola into the ground, it now faces the death threat from software giants Apple and Google in the West and phone makers Samsung and HTC in the East.

But, it has survived and how. The battle it most recently won was over the market for mobile phones with two or more SIM cards in India. With as many as half the phone purchases in India dual-SIM phones, Nokia launched such models in June 2011 with features such as multi-SIM profile recognition. Cut to today: Nokia has a one-fifth share in the dual SIM phone market with rivals Micromax and Karbonn on the ropes. Even Samsung's dual-SIM phones introduced in February have hardly dented Nokia's share.

Next, eyeing the rising data usage in India, Nokia is attempting to shift the goalpost in the mobile phone business. It has introduced the Asha-branded range of feature phones with some smartphone features at prices ranging from Rs 3,000 to Rs 8,000. The idea is to catch customers using data on mobile devices for the first time. A Nokia insider quotes the India office's ambition while quoting global CEO Stephen Elop: "Our turnaround will begin in India."

From the vulnerable position Nokia is in vis-a-vis Samsung, an increase in sales of Lumia and Asha phones can only be good news. But the bigger lesson the Finnish giant can learn from its mauling by the chaebol is what Haw, one of the two "littlepeople" in Spencer Johnson's Who Moved My Cheese? bestseller, learnt about dealing with change: "Be ready to change quickly. And enjoy it again."

Edited by Josey Puliyenthuruthel

**An earlier version of this subtitle incorrectly suggested Samsung had overtaken Nokia in India, when in reality Samsung is rapidly catching up.  The error has been corrected.