Nokia shares dive as rivals challenge dominance of mobile giant

Click to follow
The Independent Online

Nokia, the world's largest maker of mobile phones, which is struggling to maintain its dominance in the market, yesterday said its situation was likely to deteriorate because of fierce competition from rivals.

Nokia, the world's largest maker of mobile phones, which is struggling to maintain its dominance in the market, said yesterday its situation was likely to deteriorate because of fierce competition from rivals.

Third-quarter sales and profits would fall, Nokia said, as the Finnish company struggled to regain ground against competitors which have been much quicker to spot new trends in the mobile phone market.

Nokia's shares, already on a downwards trajectory this year, fell a further 13 per cent to a near six-year low on the prediction that Nokia is almost certain to experience no relief from its current difficulties until well into next year.

Nokia, which controlled almost 40 per cent of the mobile handset market in 2002, has made a series of strategic blunders which have cost it valuable sales to rivals. Analysts have criticised the company for failing to realise that sophisticated camera and video phones would be the new trend to attract customers in their droves.

Nokia was also slow to realise how popular "clam-shell" handsets (which flip open) would be, sticking to its old "candy bar" one-piece format which is now seen by consumers as outdated.

Both errors cost Nokia a substantial amount of market share, which it has sacrificed to providers such as Motorola, Samsung and Sony Ericsson. Sony Ericsson reported stronger than expected second quarter sales and an upbeat forecast yesterday and also unveiled two new handsets, a smartphone and camera phone.

Nokia has responded by designing several new handsets which are set to be launched this autumn and next year. It has also gone on a price cutting offensive to boost sales. According to Carphone Warehouse, the high street retailer of mobile phones, the price of Nokia's basic range of phones is 22 per cent less than in April.

Jorma Ollila, the chief executive of Nokia, said the company continued to use pricing "selectively" in order to "strengthen the competitiveness of our product portfolio in order to increase our market share in the highly competitive mobile device market. As a result, we expect our profitability to continue to come under pressure during the second half of the year," he said.

Third-quarter net sales are expected to be in the range of ¤6bn to ¤8bn (£4.5bn to £4.7bn) compared with ¤9bn a year earlier. In the three months to 30 June, operating margins dropped to 19.1 per cent from 27.2 per cent. Nokia's pre-tax profit was ¤1.036bn compared to ¤946m. Sales fell 5 per cent to ¤6.64bn. While the figures were slightly better than expected, Nokia's warning about further difficulties in the second half of the year sent the company's shares tumbling.

Morgan Stanley said in a recent research note that Nokia had "peaked two and a half years ago", when its market share stood at 37 per cent.

Nokia is going to have to deal with the shift in the relative strength of different global markets. Nokia has been strong in western Europe and the US, but those markets are now stagnant compared with fast-growing markets such as China, where Nokia controls only 15 per cent of the market, Morgan Stanley said.

Comments