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Nokia bows to cellcos in midrange

Pursues new markets

In a major preview of its strategy for 2005, Nokia seems to be giving up the battle with operators in its core midrange handset business, but compensating by chasing a host of new markets where it can attain its accustomed levels of dominance.

Plans outlined at its Capital Markets Day last week sounded, on the one hand, like a statement of repentance for sins against cellcos. Nokia would major on clamshell and fliptop handsets - which it long dismissed in a bid to keep its signature candybar design dominant, despite the demands of carriers; Nokia would work more flexibly with operators to produce phones to their specification, a trend that it has fought tooth and nail in the past, standing up for its own brand and ability to direct development priorities.

Nokia pleases the cellcos

CEO Jorma Ollila said that Nokia is in the middle of an 18-24 month transition to come closer to carrier customers, working on customized designs and on software to make it easier for operators to differentiate their offerings. Almost 90 per cent of the 2005 phone line-up will support software customization and 25 per cent will have exclusive operator designs.

He admitted past mistakes in not offering a wider variety of form factors, committing to moving even more strongly away from its traditional candybars. Of the 40 new handsets Nokia plans to launch in 2005, more than half will be clamshell, slider or other factors, compared to just three at the start of this year.

It seems that the Finnish giant believes that concessions in these key areas for its largest division, handsets, are necessary to its goal of gaining 40 per cent market share, compared to its current 30 per cent. Such volume levels are essential to the cash, and the investor confidence, that will underpin its more ambitious goals, to expand into new areas of business where it can assert its old control over design and business partner relationships, and where it can increase margins and steal a march on rivals.

High end multimedia

As we have seen before, these areas focus around high end multimedia devices and enterprise solutions, and driving the software standards agenda with platforms such as Series 60 and the new content framework Preminet (see Wireless Watch 84).

Up at the high end, Nokia announced the 7710 widescreen multimedia smartphone, which features a full internet browser, integrated stereo music player, extensive video playback and recording features, FM radio with the Visual Radio client, and megapixel camera. In 2006, the company will announce its first mobile phone with built-in television receiver, which is being tested in the UK and Finland now.

Nokia also committed to making its Series 60 software platform stronger for development of multimedia devices, supporting widescreen, touch screen and pen-based input and push to talk.

"Extending Series 60 will help operators and developers innovate, differentiate their offerings and achieve critical mass quickly in these new markets," said JT Bergqvist, Nokia's general manager for networks. Nokia reports shipments of 15m Series 60 phones to date. This platform, which is licensed by other Symbian OS vendors such as Siemens, is the company's best chance to create de facto standards for high end phones.

Series 60 is important to the multimedia market for advanced consumers and also, with support for various input and browsing mechanisms, to the enterprise. Here, Nokia is seeking to build an ecosystem with strong corporate applications and middleware that will cement its fledgling position with integrators such as IBM Global Services, as an alternative mobile enterprise platform to Microsoft.

Alternative wireless networks

Other areas, outside its normal cellular sphere, where Nokia hopes to establish a strong and high margin presence include near field communications (NFC). The company joined forces last week with Samsung, Philips and Visa to promote products based on Philips' NFC standard, which Nokia has now incorporated into a handset through a 'shell' attached to the back of the device. This shell interfaces with the NFC radio and communicates directly with the phone's baseband, supporting applications such as making swipe payments for items such as travel tickets, using a phone waved over a special terminal. Nokia and Philips also announced a joint project with Rhein-Main Verkehrsverbung, the public transport authority for Frankfurt, Germany, to use NFCcapable mobile handsets in a trial.

Nokia is also interested in using NFC to simplify purchase of ringtones and games, and so boost the market for such content. Samsung will also launch NFC handsets next year.

In another offshoot from its mainstream business, Nokia sees increasing business in in-car systems to surround the handset and hands-free console. It has worked with car maker Nissan to develop an integrated vehicle communications solution for the Nissan Primera model. Integrated into the central console, the new system offers hands-free operation using the vehicle's N-Form control system and applications such as viewing of phonebooks and call waiting for hands-free communications. Nokia recently announced another specially developed in-car system, for Ford.

The quest for market share

Back in the core handset business, Nokia will seek to boost margins and pamper its cashcow for as long as possible by cutting R&D and marketing, diverting some of these resources to the newer Media and Enterprise units and cutting back overall. Ollila said Nokia wants to cut the proportion of its R&D expenses, reaching 9-10 per cent of net revenues in 2006. Both devices and networks R&D will be affected, but cuts will be achieved not just through budget cuts but by efforts to improve efficiencies and speed time to market.

However, there are serious question marks over how this shift could harm its market share objectives, especially coming after the recent price cutting drive, which may have degraded Nokia's brand power in the midrange somewhat.

According to IDC, Nokia took 31.3 per cent of the world mobile phone market in the third quarter, in a sector that grew by 23 per cent year on year in terms of shipments, to 164.1m units. Motorola was in second place with 14.2 per cent and Samsung in third with 13.8 per cent. This was Nokia's first showing above 30 per cent this year, an achievement credited to its midrange and high end models. Siemens had 7.6 per cent and LG 7.2 per cent, pushing Sony Ericsson into sixth position with 7.1 per cent.

Finally, if times look bleak, sue someone. Nokia has attacked two small handset makers, Sagem of France and Vitelcom of Spain, for alleged registered design infringement. It claims Sagem has copied its designs and wants to force the company to withdraw its flagship model, the myX5-2. This is the first time Nokia has taken such action and shows the increasing importance, in a cut throat market, of visual design and branding. The Finnish company has a new internal program called Design Watch, aimed at raising awareness of the company's unique design qualities.

Although Nokia dwarfs Sagem in terms of sales, selling 142m handsets in the first nine months of 2004 compared with Sagem's 15m, Sagem claims to have overtaken Nokia as the largest supplier in the French market.

In a separate action, Nokia filed a case against Spanish handset producer Vitelcom, accusing it of infringing upon 'essential patents' relating to GSM and GPRS technologies. Vitelcom produces unbranded devices for the own-brand operator market.

Copyright © 2004, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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