Market analysts speculate that Nokia would eventually join the Google's Android or Microsoft's Windows Phone 7 ecosystem. McKechnie has a "neutral" rating on Nokia shares. Nokia's current OS strategy (Symbian/MeeGo) is not generating the expected returns, especially in the smartphone space. Only, Microsoft's Windows 7 models are lagging behind Nokia with shipments of around 2 million units. This leaves two alternatives; either adopt Windows Phone 7 or Android." Garcha noted.
Analyst Garcha said Android is probably the best option available for Nokia as this will give the company access to the most innovative, and fastest growing smartphone platform that has captured 26 percent market share globally. Android is also scalable both to lower end smartphones and tablets.
Recently, Android dethroned Symbian to become the top smartphone OS. Manufacturers shipped 33.3 million Android phones worldwide, compared to Nokia's 31 million, according to the latest data from the UK-based market research firm Canalys.
Also, Android OS has consistently seen improvements, with Google already having launched five major iterations of Android OS since its initial launch in September 2008. Garcha says by adopting Android, Nokia could have an Android product within a year, which could drive a smartphone recovery through 2012-2013 and result in earnings power of €0.96 a share in 2013.
The analyst believes within 12 months of adopting Android, Nokia could start gaining relevance in the smartphone market, causing smartphone share to recover to 26 percent by 2013, with improving average selling prices (ASPs) and gross margins (GMs). In longer term, Nokia may become a commoditized hardware vendor with margins in the 8 percent range.
Adopting Windows Phone 7 (WP7):
By adopting WP7, Nokia could implement a decent touch screen OS for the smartphone market as WP7 offers tighter integration of Xbox and Zune services. Garcha said a Microsoft-centric strategy could allow for a smartphone share recovery from mid-2012, improved revenue mix and margin recovery, all depends upon Nokia's execution. Indeed, assuming smartphone share recovers to 26 percent by 2013, this could drive earnings of €1.01 a share for Nokia.