Nokia had intended to debut the touchscreen phone, dubbed the X7, in conjunction with AT&T ahead of the Mobile World Congress trade show next month in Barcelona, Spain, these people said.
The X7 would have been the first Nokia smartphone launched exclusively with a U.S. carrier since former Microsoft Corp. executive Stephen Elop took over as Nokia's CEO last September. The unexpected cancellation leaves Nokia further behind in its effort to correct a major strategic weakness—its poor showing in the lucrative U.S. market, where it lags Apple Inc., BlackBerry maker Research in Motion Ltd. and phones powered by Google Inc.'s Android software.
"In the U.S. market, the Nokia platform is at the back of the line behind all these other guys," says Roger Kay, president of tech consultancy Endpoint Technologies Associates Inc. "This is a very fast moving market. You don't want to be sitting around."
Nokia decided to pull the phone because it believed the X7 wasn't going to receive enough marketing and subsidies support from AT&T, said one person close to the company. Nokia still plans to launch the X7 in other markets, this person said.
In the U.S. market, phone companies typically subsidize much of the cost of a smartphone to keep the price down as long as a customer signs up for a two-year contract. Operators also help to pick winners by putting their marketing muscle behind certain devices.
The move leaves Nokia more reliant on its N8 smartphone. Nokia launched the N8 late last year without carrier support in the U.S., hindering its chances. Consumers can purchase the N8 from Nokia's website for $469, down from $549 when it launched. That compares with $199 for the cheapest iPhone and many Google-powered phones, though subscribers have to sign up for two-year contracts to get those prices.
While Nokia continues to stumble in the U.S., other handset makers are aggressively moving ahead with new smartphones. At the Consumer Electronics Show in January, Motorola Mobility Holdings Inc., Samsung Electronics Co. and HTC Corp. announced new smartphones that will be released in the U.S. in the beginning of 2011. Moreover, Verizon Wireless will begin selling the iPhone 4 in February.
Nokia, long the world's leading producer of mobile phones by number of units sold, is being hurt by its failure to produce a smartphone that can compete with the iPhone or models based on Google's Android software, as well as by its longtime focus on markets outside the U.S.
Nokia's Symbian operating system, which powers the X7, is seen as cumbersome and outdated. The company is building its new high-end smartphones around a platform called MeeGo, developed with Intel Corp., but that effort has been delayed as well. Mr. Elop said in the company's third-quarter conference call that Nokia would launch its first MeeGo device this year.
In the third quarter of 2010, Nokia was still the world's top maker of smartphones with 32.7% share, down from 38.3% a year earlier, according to researcher IDC. Apple, Samsung and HTC have been gaining share. Nokia isn't among the top five smartphone makers in the U.S.
"In the past, Nokia could afford to ignore the U.S. because there was so much growth in markets overseas," said Daniel Hays, a telecom consultant with the firm PRTM. "However, with the rise of the mobile internet in the U.S., Nokia can't afford to not be in the mix."
Nokia's smartphone strategy will be in focus when the company reports earnings Jan. 27. Mr. Elop has yet to detail his plans for the U.S market. On a conference call with investors in October, Mr. Elop said there was no reason Nokia can't succeed in North America, but did say it would require a change in strategy.
"I believe there is a degree of focus and execution necessary, along with different patterns of doing business that can drive success in that marketplace," Mr. Elop said.
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