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In the smart phone era, can Nokia recapture its glory days?

In the smart phone era, can Nokia recapture its glory days?
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First Published: Sun, Dec 13 2009. 10 11 PM IST

Tough job: Nokia chief executive Olli-Pekka Kallasvuo. Pankaj Nangia / Bloomberg
Tough job: Nokia chief executive Olli-Pekka Kallasvuo. Pankaj Nangia / Bloomberg
Updated: Sun, Dec 13 2009. 10 11 PM IST
Helsinki, Finland: If there’s anywhere left in the world where it’s still impolite to flash a BlackBerry or an iPhone, it’s Nokia’s annual analyst meeting.
But earlier this month, as executives talked up the company’s plans for 2010, the optimistic message from the stage was belied by the behaviour of the audience. In the back of the room, one money manager after another distractedly toyed with a competing device, typically a BlackBerry, even as cheery PowerPoint slides promoted Nokia’s latest offerings.
“It’s bull,” whispered Francois Meunier, an analyst with Cazenove in London. “I don’t think anyone in this room is expecting an improvement in earnings next year,” he told the assembled executives, before asking whether Nokia’s 4% dividend is sustainable.
Tough job: Nokia chief executive Olli-Pekka Kallasvuo. Pankaj Nangia / Bloomberg
Meunier’s downbeat assessment of the once-mighty mobile phone maker’s prospects in 2010 comes after an equally gloomy 2009, a year the company would just as soon forget.
Although Nokia, based near Helsinki in Espoo, still commands 37% of the world’s handset market, it’s facing bruising competition in the lucrative high end of the industry, where Apple Inc.’s iPhone and Research in Motion Ltd’s BlackBerry have grabbed the cool factor in smart phones that can surf the Web and handle email.
“The whole user experience is a nightmare,” moans Nick Jones, a senior analyst with Gartner Inc., which tracks the technology sector. “It’s just not in any sense a competitive experience with iPhone.”
Olli-Pekka Kallasvuo, the company’s taciturn chief executive, admits the mood out there is gloomy, especially on Wall Street. “We are not getting the benefit of the doubt,” he said in an interview the day after the analysts’ meeting. “We need to change that.”
Nokia’s problems are acute in North America, where its hold on smart phones equals a barely visible 3.9%, compared with 51% for Research in Motion and 29.5% for Apple, according to Gartner. As if to underscore its problems in the US, Nokia announced on 10 December that it would shutter its flagship stores in New York and Chicago.
“We made wrong decisions in the American market,” says Kai Oistamo, executive vice-president for devices. For example, Nokia was slow to make the change to so-called clamshell phones, sticking with “monoblock” models even as consumers abandoned them.
And while Nokia first offered touch-screen technology in 2004—three years before the debut of the iPhone—Apple’s models made Nokia’s competing products look stodgy.
Though Nokia sells a lot of smart phones elsewhere in the world, its share of the global smart phone market has fallen to 39.3% from 42.3% a year ago. Even in Nokia’s home base of Europe, the iPhone is rapidly gaining in popularity.
Nokia is finally responding—its lithe, BlackBerry-like E72 appeared in the US on Tuesday—but it is facing looming threats in other segments.
Google Inc. is offering Android, a rival to Nokia’s operating system, which has been picked up by competitors such as HTC Corp., Motorola Inc. and Dell Inc., while Asian manufacturers are turning up the heat with low-priced handsets in emerging economies where Nokia has enjoyed outsize market share. Meanwhile, Apple and Nokia are locked in a legal battle over patents.
“Nokia faces competition everywhere,” says Sherief Bakr, a Citigroup analyst. “At the high end from Apple, in the midrange by Research in Motion, and by the Koreans and the Chinese in the low end.”
Once a stock market darling, Nokia shares have fallen 20% since September even as the broader market rallied. The firm reported its first quarterly loss in more than a decade in October after a $1.3 billion (Rs6,045 crore) write-down in its equipment business.
In Finland, Nokia’s problems are felt especially keenly. Nokia accounts for 25% of the Helsinki stock exchange’s capitalization and one-third of Finland’s total research and development spending, according to Jyrki Ali-Yrkko, of the private Research Institute of the Finnish Economy.
But for all the new competition in smart phones, Nokia remains the dominant player in conventional handsets, selling roughly 15 phones a second worldwide, according to the company, including the Nokia 1201, a basic model that is its best seller. Analysts project revenue in 2010 will top $60 billion, while profit is expected to equal $3.5 billion next year as the overall phone market grows 10%.
And while market share might be minuscule in North America, the company commands a whopping 62.3% of the market in West Asia and Africa, as well as 48.5% in Eastern Europe and 41.8% in Asia.
©2009/THE NEW YORK TIMES
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First Published: Sun, Dec 13 2009. 10 11 PM IST
More Topics: Smartphone | Nokia | Blackberry | Apple | iPhone |