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Nokia’s Nroblems

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Nokia’s financial report card for the fourth quarter 2006 shows that the Finnish giant posted higher revenues ($15.22 billion), higher earnings ($1.65 billion), and higher share of the global handset business (35.2 %.)

n73tiny.jpgNokia’s margins declined a fraction, and so did the average selling price of their phones, about to 89 Euros. You can correlate that to a series of problems, most of them starting with the letter N. Lets call them nroblems.

Nokia’s mobile phone shipments to North America, one of the more affluent mobile markets in the world, skidded about 40% to 5.9 million units for the quarter. Ouch! NA is the only other market where there is a semblance of demand for high-end phones.

Talking about high-end phones, the second problem Nokia has on its hands – the slowing sales of their highend N-Series phones. (Why they continue to refer to these devices as “multimedia computers,” I don’t understand. Computer are work, mobile are fun!)

The N-Series sales are down in North America and Europe, two markets where they should be selling. I think with N-Series, Nokia has overshot the market. For all the hype, they could sell only six million N-Series phones in the quarter, and that was before Steve Jobs showed off the iPhone. How many people will be willing to drop $499 on a Nokia, before checking out the iPhone?

nokiaeseriestent.jpgThe N-Series phones are not thin (which is in) and cost too much. (N76 is supposed to fix that, but lets see.) They are actually doing too many things, and don’t inspire owner-lust. N73 is the only exception. In comparison, their E-Series seems to be a runaway hit because they have a specific purpose: they are business phones. By the way, where is the Nokia N75 music phone designed for Cingular’s 3G Network?

The third Nroblem is the demand of cheap Nokia phones is going up in new markets, but that doesn’t add much to the bottom line. As we had pointed out earlier this week, Nokia like it peers and closest rivals, Motorola and Samsung, has been pushing hard in the emerging markets in Latin America, India and China, where the demand is primarily for low cost handsets.

These problems are not going away anytime soon. “Challenges continue in the first quarter as we operate in an environment where customers want lower levels of inventory and where growth in the wireless market is skewed to low- priced, basic-featured cell phones instead of higher-priced, full-featured phones,” said Rich Templeton, Texas Instruments, president and CEO. TI had reported lukewarm results earlier in the week and is a key supplier to Nokia.

Nokia simply needs to sell more of these high margin N-Series phones to make up for low end of the business. It has to post a strong comeback in North America for precisely the same reasons. The only problem is that in its own backyard, Motorola is no pushover!

Photo of Nokia Tent at CES by Katie Fehrenbacher.

13 Responses to “Nokia’s Nroblems”

  1. Why iPhone is so acclaimed before ever tested? US is a great country but one mistake they made is to choose CDMA while Europe and rest of the world was using GSM. US doesnt have a tradition of using nice cell phones, you can see in every movie that they use Motorola, the worst phone in the world and those bulky Sprint phones. Its like comparing cars in 80’s with Europe.
    Nokia is reliable, has a tradition with good quality well made phones. I trust Nokia, a phone company and Im not idiot to be in line to buy a iPhone that I dont know whats inside, and probably will be a black box. For now its only a piece of design. Lets see it working before giving it a medal. Nokia N series are fantastic phones. Open to everyone build applications, you can replace batteries. It last for years. I have a N80 and I strongly recommend it.

  2. Nokia is very savvy …it is going after emerging markets. It is the best thing to do because these markets will go through cycles of upgrades and nokia will do well with a market that it understands well. Nokia sells a large number of high end phones in europe, japan, korea. It really doesn’t care about North America …it is easy to see why. North american 2-yr contract structure is slow to upgrade given the level of saturation …more importantly it is carrier dictated market. In addition, given the very slow uptake of 3g in the US, nokia is better of going after europe and japan where the latest and greatest is. In simple terms, North america is a loser market and nokia doesn’t care a hoot. Cingular barely offers 2 nokia phones & verizon offers like 3 i think. Personally, nokia menus are the best designed. period.

  3. I agree, though I think that the problem is multi-fold. I think the main problem is that Nokia doesn’t do any advertising in the US market, and the little they DO advertise is those horrid commercials with Billy Bob and whatnot. They’re trying to bolster brand recognition without showing off features, and I think if you look at what other manufacturers are doing, you HAVE to showoff the device, in the NA market.

    Also, they have GOT to focus on the US market. They said they were going to, but yet at CES, not a single one of the phones they “launched” were for the US market. The N93i doesn’t have GSM 850, which is used heavily, and the N76 has it, but also has European 3G bands. With Nokia making such a stink about how mobile internet is the future, they sure don’t seem to care about it here.

    They have 2 options if they want to have success in the US market:

    1. bend over completely to the carrier. There’s no room for pride/ego anymore, if that’s the distribution method they want to keep.

    2. screw the carrier completely and ramp up their retail offerings. There’s a huge market out there for unbranded phones, but only if the consumer can get them easily. Joe Consumer is wary of buying electronics that pricey over the internet, specifically from importers. But he wouldn’t mind going to a Nokia Flagship store or CompUSA (2 of Nokia’s retail outlets) to purchase one he can walk out the door with.

  4. Jesse Kopelman

    Is the ultimate form of a high-end mobile device really a phone? There are inherent limitations of the form factor that just can’t be overcome. I think the smart phone is always destined to be an adjunct device and such will have to be priced less than the primary device (i.e. your phone shouldn’t cost more than your PC). Now the tablet has more potential to be a primary device, especially if the we look at a Web 2.0 world of online applications and storage, and as such more ability to command a premium price. With it’s tablets Nokia has started to make inroads, albeit very tentative ones, into this emerging market and as such may be better positioned for the future than their peers.

  5. agree with raddedas, not exactly a quality posting.
    and connecting every news with iphone, well. i prefer to read news not cheap pr. otherwise i would still be subscribed to techcrunch

  6. Tim Meyer

    Between Blackberry and Treo, Nokia is having a hard time positioning smart phones for the US market it seems. The E61 has a rabid following (even at $400) while the E62 at $150 is a Blackberry lookalike without 3G or WiFi. This kind of feature management by the carrier certainly doesn’t bode well for phones that are often replacements.

    At the end of the day Nokia does not have any smartphones with either T-Mobile or Cingular other than the E62. The 6682 was their last S60 candybar.

  7. I have always enjoyed Nokia phones. I wish the U.S. carriers would pick up some of these high-end phones though. Its kind of hard to justify half a grand on a phone. Maybe they should remake the e70 into an N series phone. Take out the corporate email and change the color of the phone.
    One thing I hope the iPhone does do to the market is make it impossible for the high end phone to NOT come with 4-8 gigs of RAM.

  8. “NA is the only other market” (3rd para) – I thing you forgot to qualify the other… do you mean Europe? Or Japan? Or South Korea? All markets where high-end phones are far more prevalent than the US (things have improved, but really the lineup for most US operators is still pretty weak).
    I’d assume the big hit for Nokia in the US is at least partly to do with Qualcomm wranglings, meaning they have to rebadge CDMA phones rather than make their own. Painful, but a discrete reason not a trend caused by specifics about a product.
    The big three are all going after emerging markets with low-margin phones, this is no more Nokia’s problem than Motorola’s. If there’s one thing Moto excels at, it’s making bad phones, so they should have a natural advantage but Nokia does have volume on its side so it’s worth considering they’ll outlast anyone else at the low-margin game, and their phones are significantly easier to use which helps.

    Really, I think you’ve spotted an obvious thing Nokia would like to do – sell more high-end phones – but overplayed it a bit because of a US bias and a misunderstanding that Nseries is not the only top-end line for Nokia: the premium Series 60 OS is being pushed further into the mainstream because it’s often not being sold as a smartphone, just as a phone which looks nice and has lots of features. The N-series is an experimental line for absolute cutting edge features, they are feeling a path for Nokia’s mainstream phones of tomorrow, and they may lose their way a bit from time to time but don’t write off Nokia’s high-end because of that… at least they have one, not a bunch of tired knock-off thing RAZR rip offs and tanking sales.

    Incidentally I’m not actually a massive Nokia fan, but I don’t think they’ve been represented fairly here…