Nokia loses its grip on mobile dominance

Profit margins at Nokia are expected to come under increasing pressure this year as the Finnish mobile phone maker battles to stop the rot in its crucial market share figures.

Profit margins at Nokia are expected to come under increasing pressure this year as the Finnish mobile phone maker battles to stop the rot in its crucial market share figures.

New research from Gartner, the firm of technology analysts, confirmed a worrying decline in Nokia's global market share yesterday. The company is being outstripped by more nimble competitors such as Motorola and Samsung who have also benefited by being more willing to bend to the wishes of network operators, such as Vodafone, when designing handsets.

Nokia saw its global market share tumble from 34.6 per cent to 28.9 per cent between the first three months of last year and the first quarter of 2004. Motorola rose from 14.7 per cent to 16.4 per cent, while Samsung jumped from 10.8 per cent to 12.5 per cent.

Gartner's latest Nokia market share figures compare with its best figures for the mobile phone maker of 36.9 per cent, recorded in the final quarter of 2001. Nokia's own estimate of its best market share figure is 38.9 per cent, which means its decline could be equal to as much as a quarter of its peak market share.

Total global mobile phone sales in the first quarter were 153 million with Gartner increasing its full-year estimate to 600 million from 580 million.

Ben Wood, an analyst at Gartner, said there was evidence that Nokia had taken action since the start of the year to bolster its position, but this involved cutting prices which would squeeze profits.

"I think we have to be a bit careful. I am definitely not writing them off," he said. "They have taken some pretty rapid action implementing price cuts in the second quarter. We are seeing them stabilising their market share position and may even catch up. The trade-off, obviously, from a financial perspective is that they have had to cut margins to do that, which is unlikely to be popular."

Mr Wood added: "Nokia's dramatic drop in market share resulted from a weak product portfolio and the decision by operators in Western Europe to source more phones from Nokia's competitors."

Gartner measures sales volumes in the mobile phone market but financial analysts have already started slashing their forecasts for Nokia. Goldman Sachs and Morgan Stanley recently cut their estimates for the company, issuing highly bearish assessments of the company's outlook. Even in emerging markets, where Nokia has seen its traditional dominance maintained thanks to demand for cheap, entry-level handsets, there is evidence it may be struggling.

Morgan Stanley told clients four weeks ago that a market research contact in Russia had suggested Nokia had dropped from No 1 to No 3 there, although Nokia disputes this.

However what Nokia is not denying is that globally its market share has taken a battering. A spokeswoman said: "We have taken action to improve our market share."

Many analysts believe its problems are deep-seated. "It is really in the mature markets, such as Western Europe and the US, where Nokia has missed the mid-tier market with the likes of the clam-shell products," Mr Wood said.

Nokia's traditional "candy bar" design of phone has looked increasingly out of date compared with flip-top models.

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