Nokia sees bottom to mobile market malaise
The mobile handset market is set for recovery after the worst economic downturn since the Great Depression, according to Nokia, the world's largest maker of cell phones.
The cell phone market has been hit particularly hard by the worldwide economic slowdown. And companies such as Nokia and Sony Ericsson have taken a beating.
The second quarter of 2009 was particularly hard for Nokia. The company's earnings were ugly with a 25 percent drop in revenue, a 15 percent drop in handset shipments, and a more than 70 percent decline in operating profits, compared to the same quarter in 2008.
Sony Ericsson, which reported its second quarter earnings just hours before Nokia, also had a poor showing in the second quarter. The company posted a 213 million euro ($301.4 million) net loss for the second quarter, which was down from a profit of 6 million euro ($8.5 million) during the same quarter a year ago.
But for Nokia and Sony Ericsson there are glimmers of hope in their results. Sequentially, Nokia's revenue and profits improved slightly compared to the first quarter of this year. And Sony Ericsson posted a narrower net loss than analysts had forecast.
These bits of positive news are likely contributing to a growing sense that the worst of the recession may be over.
"Competition remains intense," said Nokia's CEO Olli-Pekka Kallasvuo. "But demand in the overall mobile device market appears to be bottoming out."
This is good news for an industry that some market research firms have predicted will see at least a 20 percent drop in product shipments for 2009 compared to 2008. Nokia admits that neither its company nor the industry as a whole is out of the woods just yet. It reiterated on Thursday that it expects the industry to shrink about 10 percent in 2009 compared to last year.
But news that Nokia, which sells about 40 percent of all handsets in the world, is seeing the light at the end of the tunnel is a major positive for the industry and the economy as a whole. Even though unemployment rates are still rising in the U.S. and abroad, there are other signs from the technology industry that consumers and businesses are starting to spend again.
Earlier this week, Dell said it's seeing demand for its products--PCs, services, servers--"stabilizing." And Intel released an upbeat outlook during for its second-quarter report on Tuesday. Intel's feel for the market is an important bellwether for the tech industry, and the chipmaker reported its best first-to-second-quarter growth in almost two decades. CEO Paul Otellini declared it a "clear expectation for a seasonally stronger second half."
These are all good signs that the economy is headed for recovery. But the climb back to robust growth could be a slow one. And there's no guarantee that a rising tide will lift all boats, especially in the mobile handset business.
Right now, the mobile handset market is going through a massive transition. Cell phones that were once used simply to make phone calls have evolved into jack-of-all-trade devices. Increasingly, cell phones are being used to provide Internet connectivity that allows people to use new forms of communication, such as social networking sites. Olli-Pekka acknowledged this trend during Nokia's second-quarter conference call with analysts and investors, noting that in the future more people will connect to the Internet via a cell phone than a computer.
"A new industry is emerging as the Internet and communications converge," he said. "And consumers will increasingly demand products that are more integrated."
Nokia has been at the forefront of developing devices that do just that. The company has led the market with its 3G wireless portfolio and it has led the market in terms of worldwide shipments with its smartphone devices, the N-series and E-series phones. On Thursday, it reported that some of these devices have been doing quite well worldwide. For example, it shipped 3.7 million 5800 series handsets during the quarter. And it also noted I has sold a total of 5 million units of its popular E71.
Smartphones are key
Smartphones in general are expected to lead growth in the industry as consumers look for more advanced features and easier access to the Internet and online applications.
But recently Nokia has lagged in terms of innovation here. Meanwhile, Apple is now viewed the leader in terms of innovation with its iconic iPhone. And other companies like as Research In Motion and Palm are also making advances with their own products. The new Google Android operating system, which will be on a whole slew of devices in the second half of 2009 and into 2010, is also expected to push the industry forward in terms of innovation.
Nokia and Sony Ericsson, each recognize that they need new products in the smartphone market to excite consumers. Sony Ericsson's flagship smartphone, Xperia, has so far not been particularly strong. But the company is working on other new products. And during a conference call with investors, Sony Ericsson Chief Executive Dick Komiyama said his company's new product portfolio should contribute to "healthier topline development" once shipments start later in 2009.
Nokia's Olli-Pekka also noted that the company plans to increase its focus on developing more advanced phones.
"The line between handsets and PC will not exist in the future," he said. "And our ambition is to become the leading provider for these integrated mobile devices."
But Olli Pekka also emphasized the need to address the low and mid-range of the mobile market as well. And he emphasized the need for Internet connectivity and sophisticated technology in these devices as well.
"As we have said before, one size doesn't fit all," he said. "Nokia will continue to address all price points and all markets globally."
This is exactly the market that INQ Mobile, a new handset maker backed by Hutchison Whampoaa, is addressing. Smartphones may offer more growth, but basic Java-based feature phones still make up the bulk of the market. Today about 40 percent of the cell phone market is made up of phones that operators buy for between $36 and $99, according to Strategy Analytics. These are typically basic feature phones. Smartphones, which sell to carriers for more than $300 a pop, make up about 17.8 percent of the market currently, says Strategy Analytics.
In terms of market share, these figures are not expected to change much over the next few years. Mass market devices, which are in the mid-tier in terms of pricing, will continue to make up about 40 percent of the overall cell phone market well into 2014, the firm has said. But this doesn't mean that the average consumer will settle for me-too low-functioning devices. They are increasingly demanding more advanced functionality in lower-priced devices.
"The market is going through a huge seismic shift right now," said Frank Meehan, CEO of INQ Mobile. "People want more functionality in their phones, even the less expensive phones. They are demanding a good user interface. And they're refusing to put up with a bad Internet experience."
Meehan believes that this market has been largely overlooked by the major cell phone manufacturers, which have done a poor job integrating Internet-based applications and social networking into their devices. His company is trying to address this void with new, inexpensive devices that make it easier to access Internet based applications like Facebook with a single click.
The challenge for companies such as Nokia and Sony Ericsson over the next couple of years as the industry moves out of the recession and toward Internet-enabled devices is to address the high-end of the market as well as the low and mid-tier of the market. For these companies it will require a balance between controlling costs and adding innovative new features. As Nokia's Olli-Pekka pointed out during the conference call, the winners in this new era in the cell phone market aren't apparent yet. But he is confident that Nokia can rise to the occasion.
Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie. 
Nokia = Old and Busted
Apple = New Hotness
Also Nokia may have posted a loss in profit but it still did not lose any market share, this is all do to all markets excluding USA. In the US no major cell phone provider subsidized the top tier Nokia phones which blow everything out of the water. The US market is not as fond of Nokia as the other more developed, in the cell phone industry, markets and this is why we in the US don't know what a GOOD cell phone really is. The Nokia 5800 sold for $250 unsubsidized and yet nobody would know because of the way the US populous thinks, they don't know anything about the unsubsidized benefits and this is once again why we are so far behind others with telecoms.
Nice article, it was unbiased.
In the UK Nokia & Sony-Ericsson aimed highly at the pre-pay market...which is way ahead of the equivalent here in the US (by at least 4 years). Including 3G, tethering, multi-media to name a few. An expensive way of doing it, but it allows those who cannot afford or are unable to get a contract to access those areas once open to the few.
Now if carriers in the US could see their way to allow pre-pay customers to access all that the contract customers have, then the likes of Apple, Samsung, RIM, etc, would be able to play catch up with Nokia to gain world-wide dominance.
The pre-pay market may be aimed at the teens & younger, but, as they have found out in the UK & in Europe, this group are the future to going on to contracts & therefore more long term business & financial rewards!!!!
Reported 2nd Quarter Operating profit was up 676.4% from Q1!
Nokia can blame the current recession if they like, but Nokia's true problem is being blinded by the next wave of technologies. As the author wrote, people demand more from their phones today than ever before. Social Networking is the new norm. Hundreds of millions of people are linked into social networks. Phones with cameras, location based images, texting, and web experiences will lead this market. Not your basic hand-set. And not those extremely expensive almost computer like phones that Nokia makes.
You can buy a Blackberry Tour for as little as $199. Verizon has the Storm for $99. Apple has their baseline iPhone for $99. The Palm Pre is $199. And you have plenty of Android phones for $199. And all of these will outsell the Nokia N series phones. They cost less, offer more and are more accepted by the mass population. Blackberries sell close to 7 million phones per quarter now. Apple sells between 4 and 6 million iPhones per quarter, and that's without China, which will soon be in Apple's future. Palm is getting good reviews with it's Pre. And Android has a strong future build-out. What is missing is anything near as promising for Nokia. No where is there excitement for their products.
If the rumors are correct, RIM sold 300,000 Tour phones in the first day. I myself upgrade from a Curve to the Tour and I am extremely happy with the phone. A new Storm 2 is said to be around the corner which will address the touch screen.
New HTC phones are getting fantastic press. Even the lagging Windows Mobile looks more promising than what Nokia is releasing.
I would not expect to Nokia improve the financial outlook at all. As an avid investor, I can honestly tell you that no one is betting on Nokia regaining any marketshare. Every financial news program commentator has also said as much. We all feel Nokia is the horse and buggy company in denial about the coming of the automobile. They are yesterday. While I am not shorting the company, I am holding investments in Apple as I view them as the leader. RIM is strong contender as well. There stock has more than doubled from a few months ago, and many of us were able to buy in at $38 and watch the common jump to over $80 for a while. It's in the $72.38 right now. On November 5, 2007 Nokia was a high of $42. Today they are at $13.39. I wouldn't even count on a dead-cat-bounce for those guys.
- by MonTemplar July 31, 2009 10:32 PM PDT
- I recently bought an INQ1 phone (made by INQ Mobile, whom you mention in the article) on a contract from 3 here in the UK. I would have loved to get an iPhone, but couldn't justify the cost, as I don't make that many calls or send that many texts. The INQ1 is very cheap (and, to be honest, this is reflected somewhat in the build quality) but lets me get online to check e-mail, Facebook, Twitter, etc. Helps that 3 offered a really good deal with unlimited Internet, and because Skype is on the phone as well you can potentially make free calls to your friends and save even more. :)
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(10 Comments)My previous two mobiles were Nokias, and I like the brand, but I do find the range of phones they offer now to be confusing - they seem to be obsessed with trying to hit every conceivable demographic, and there is no rhyme or reason to their product names.
Just my two-penny-worth...