Nokia intensifies competition on budget phones

Nokia accelerated its push in emerging countries on Tuesday as mature markets slow, unveiling seven new phones and Internet services while slashing almost 600 jobs in its marketing and research units.

Emerging markets are a stronghold for the world's top mobile phone maker, but it has lately seen increasing competition from vendors such as China's ZTE and Samsung Electronics.

The new phones include the 1202, a follow-up to Nokia's top-selling 1200 model that will sell for some €25 (£18), two models with email support priced at €40, and a €75 Nokia 7100, with smartphone-like features.

"This refresh to Nokia's entry-level portfolio will reinforce its dominance in emerging markets," said analyst Geoff Blaber at research firm CCS Insight.

While the 1202 is a direct rival to the most inexpensive phones of ZTE and smaller Chinese manufacturers, analysts said the other models will put further pressure on the low-end phones from struggling Motorola and Sony Ericsson.

Handset makers are increasingly looking for opportunities to tap booming demand from emerging markets as slowing economies have started to hurt sales in developed markets.

"We continue to be in a very strong position in emerging markets," Alex Lambeek, head of Nokia's entry level phones, told Reuters in an interview.

"I would say we are changing the game. It's not only devices, it's also about services," he said.

While welcoming the low-end launches, analysts said they were still waiting for new higher-end models, which would improve margins and help halt a steady slide in prices.

"This is maybe not what the market wants to see from Nokia these days. From volume perspective it's good, but God knows what the demand in those markets will be in the first half," said analyst Thomas Langer of West LB.

"This will lead to further market-share wins in emerging markets, but what's missing is really nice stuff in the high-end. In order to get operating profit margin above 20 per cent they need to do more in the high-end," he said.

Nokia phones' third-quarter average selling price fell to €72 from €74 in the second-quarter. It has been in steady decline in recent years as demand for lower-priced products in emerging markets rises, competition toughens and technology matures.

Last December, the company targeted an operating margin of some 20 per cent during the next one to two years for its Devices & Services business.

To help offset falling phone prices, Nokia has started to look for new revenue streams from Internet services – like media sharing, games and music offerings – which could also help it find a wider audience in emerging markets.

But, in developed countries, the Finnish group is battling more established players like Flickr or Apple.

In addition to rolling out email enabled phones costing €40, Nokia said it will roll out its email service for cheaper phones running Symbian Series 40 software this year.

"Nokia is trying to build a firewall aimed at preventing Blackberry from migrating into low-end business and emerging markets," said analyst Tero Kuittinen from Global Crown Capital.

On Tuesday Nokia said it had completed acquisition of Canadian company Oz Communications, which will enable it further to roll out email and messaging services to cheaper phones.

Nokia said in a separate statement it aims to cut 450 jobs in its markets unit, which was founded at the start of the year when Nokia combined its three cellphone units into one.

"In the markets unit we are continuing the change of the organisation which started from the beginning of 2008," said a company spokeswoman.

Nokia said it would also cut 130 jobs, or 20 per cent of the staff, at its research centre, which has focused on the most promising long-term research topics. Nokia employs some 58,500 people in its phones and services businesses.

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