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What separates the mobile handset winners from the losers? The answer seems to be success in developing markets like China, India, the Middle East, and Africa.

On Thursday Nokia announced that it had sold a record 133.5 million mobile phones during the fourth quarter of 2007. This figure was up by more than a quarter from the same period a year earlier, boosting its overall market share to 40 percent.

Meanwhile, Nokia rival Motorola reported Wednesday that shipments of its handsets had fallen 38 percent during the quarter, pushing its market share down yet again to 12 percent, the lowest level since 2001. But Motorola isn't the only handset maker struggling; Sony Ericsson has also had trouble growing its market share. The company, which targets the high-end market in Europe, only grew its market share in 2007 by 2 points to 9 percent.

So what has Nokia been doing right and Motorola and Sony Ericsson been doing wrong? The main difference seems to be in how the companies are addressing the developing markets.

Nokia reported that it saw the strongest growth in sales in the Middle East and Africa. Shipments here were up 52.3 percent. Asia-Pacific and China also saw strong sales growth, while sales in mature markets like North America fell during the quarter.

But what is different about Nokia is that it's also been making money in these markets. For the fourth quarter of 2007, Nokia boosted profit by 44 percent, to $2.68 billion, on sales of $23 billion. While Nokia clearly benefits from the high production volumes, the company has also been aggressively working to keep costs down. This has meant changing packaging for products sold to emerging markets and closing a factory in Germany in an effort to reduce overall costs.

Meanwhile, most of Nokia's competitors, including Motorola, Samsung, and Sony Ericsson, have had problems addressing the low end of the market. Part of the problem is scale. Producing products in higher volumes allows companies to get better deals on components so that they can produce individual phones more cheaply. So as Motorola's sales volumes go down, it actually hurts the company as it tries to address the cost-competitive low end of the market.

Motorola's executives see scalability as an issue going forward. But Motorola CFO Tom Meredith said that the company also needs to build more targeted products at the right price points.

"We need to be not so much a producer of volume to get scale," said Meredith during the company's conference call with analysts and investors on Wednesday. "We've got to produce the right design point with the right features and functionality at the right cost. And if we do that, scale will be less of an obstacle than it is perhaps today."

Even though Nokia currently dominates markets like China and India, competition is on the way. Sony Ericsson on Thursday said it plans to launch four handsets over the summer that will target India, a country that added more than 8.2 million cell phone users last month. But most experts agree it will take a long time before Sony Ericsson or anyone else can catch up to Nokia.

HALF MOON BAY, Calif.--Homesick entrepreneurs longing to return to China or Europe may find the motherland is offering more than a warm embrace: funding by eager investors.

China's stock market has climbed fivefold over the past two years, and efforts are under way to create an emerging market that would cater to younger companies.

"The China market has turned over five times, so it's very, very hot. But there've only been a handful of local companies that have done an IPO," said Kuantai Yeh, managing director of Intel Capital and a panelist Friday at the AlwaysOn Venture Summit West here.

While China's stock market caters to larger companies, Yeh noted that the Chinese government has efforts under way to create a Nasdaq-like market for emerging companies.

The government is also driving efforts to bake innovation into companies, a shift that has been evolving for the past five years, said members on a panel discussing investments in China.

"If you rank innovation, and the U.S. is 100, then China is 50," Yeh said. "If you see a model and can copy it very easily and duplicate it for over 1 billion people with very little R&D, why not do it? But the government is pushing China to develop its own 3G, its own computer standards, autos...and space program."

He added the government is beginning to recognize it can't continue to rely heavily on other countries' innovation to move the country forward and is encouraging businesses to spend more on research and development.

A path between the U.S. and Israel has also been well-trodden by entrepreneurs, noted Danny Cohen, a partner with the Gemini Israel Fund and a speaker on the State of European Venture Capital panel. He said he is increasingly seeing people get their training in the U.S. and then going back to Israel.

"Israel, outside of the U.S., is the most entrepreneurial country," Cohen said. "With valuations much lower than the U.S., about half, I tell people you can get a copy of a Silicon Valley company, but at an attractive price."

In Europe, an abundance of capital is available to companies, said Tod Bensen, founder of Cazenove Private Equity. "Some could even argue some companies are going public that shouldn't," Bensen said. "In Europe, it's a very healthy place to generate an exit (for an investor)."

The Solar Turbine Group is trying to bring refrigeration to emerging nations by harnessing the power of the sun.

The organization, which consists largely of MIT alumni, has devised a solar thermal generator that can be brought to market for $12,000 or less. A typical system can generate 600 watts of electricity or 20 kilowatts of energy for heating and cooling, according to Sam White, director for STG. The same system can also produce both at the same time, albeit less of each.

Parabolic mirror for capturing the sun

(Credit: Solar Turbine Group)

Like other solar thermal systems, STG uses mirrors. Mirrors concentrate heat from the sun onto a tube filled with a liquid (in this case glycol). The heat from the liquid can then be used in two ways. One, the heat can be transferred to another liquid. The second liquid gets vaporized and ultimately gets used to turn a turbine to create electricity.

Two, heat from the glycol can be used to boil refrigerant.

Although many villages in emerging nations don't have electricity, a lack of refrigeration is perhaps a more dire problem. Without refrigeration, food-borne diseases spread more rapidly. Farmers also can't store their crops in hopes of getting a better price, noted White. Thus, something like this could help improve health and local economies.

One reason the Northern Hemisphere (in my mind) moved ahead of the Southern Hemisphere is that the people there had to only figure out heating, a relatively straightforward process, rather than cooling. (I came up with that idea one day in Malaysia after walking into an air-conditioned Burger King after four hours in the midday sun.)

Hawaii's Sopogy is marketing similar devices in developed countries.

The company has installed a few prototypes in Lesotho and wants to put some in India. What has the group learned? That they have to show locals applications where and how the generator can be used. Locals just don't come up with the ideas on their own at first. "That was probably the most useful insight," he said.

The low cost comes in part because many of the parts required to build one of its solar generators are actually old car parts, White said. There's another problem solved: putting salvage to good use.

More computers than expected will ship this year, thanks to the need for PCs in emerging markets, particularly China, according to research firm Gartner.

Although Microsoft's new Vista operating system hasn't provided as big a boost as previously thought, worldwide PC shipments should pass 257 million units by the end of this year, according to the figures compiled by Garter analyst George Shiffler. That's an 11.1-percent increase over the 2006 shipment total of 231.5 million units.

It's also a slight bump up from the 10.5 percent unit growth Gartner had projected back in March. The adjusted forecast can be attributed to better sales of notebooks, in addition to the flood of new PCs to places like China, according to Shiffler.

More than half of the 128 million PCs expected to ship to emerging markets over the next two years will be for first-time use rather than as replacement computers, a trend expected to continue in the next decade, according to an eight-year forecast compiled by Forrester Research and released earlier this month.

The average selling price in 2007 for desktops and notebooks worldwide is hovering around $852, according to Gartner. That's about $20 above analysts' estimate earlier this year, but Shiffler said the increase in prices--due to the decline of the dollar, higher shipments of notebooks and a small boost by the release of Windows Vista--is likely temporary.

"They're still falling, but what happened is this year is, they started falling at a slightly slower rate. Bottom line: I don't think vendors should take comfort in the notion that price (declines) have decelerated a bit," he said. "We think we'll be back falling at a 7 percent year-over-year rate before long."

It's taken 27 years to reach 1 billion PCs in use, and market researchers say it will take only five to reach the next billion.

Forrester Research is set to release a report Monday titled, "Worldwide PC Adoption Forecast to 2015," saying that many of those next billion will be used by first-time PC users in emerging nations like Brazil, Russia, India and China. At least 775 million new PCs will be in use in those countries by 2015, according to Forrester.

Not only is access to computers beneficial to those users, it also will represent a big bump in sales for PC manufacturers and sellers. Though the computer industry can still profit from selling replacement machines to existing users, the big money to be made is in the far greater number of users who have never owned one.

There are, of course, drawbacks in entering new markets, the report warns. Computer sellers in mature markets can count on a fairly predictable cycle of PC buying, but untapped markets are hardly as predictable and vendors will likely need to work together to scale production appropriately over the next decade, says Forrester.

Additionally, at least part of the bump in PC ownership and use will be due to programs like One Laptop Per Child, Microsoft's Unlimited Potential, Intel's World Ahead, and AMD's 50X15, which aim to bring low-cost computing to underprivileged students and developing countries.