Nokia squeezes competitors in emerging markets

Nokia Corp. is behaving like a market leader with a thoughtful, winning strategy.
The Finnish handset vendor is carefully undercutting competitors in emerging markets for volume gains-enduring a short-term lag in revenue and profit growth-and is pushing hard to position its profitable smartphones for the lucrative replacement cycle now firing up in developed markets.
A string of solid, if unspectacular, quarterly results-including first-quarter 2007, delivered earlier this morning-seem to reflect this basic strategy, one that may well consolidate its market-share gains against its floundering rival, Motorola Inc., and distance itself from the pack of other top-tier contenders.
In short, Nokia’s results give the impression of an engaged management that knows how to operate a well-oiled, if complex machine, shaking off competitors as it positions itself for global domination of the handset industry.
Nokia’s CEO, Olli-Pekka Kallasvuo, seemed to acknowledge the short-term consequences of price cuts to undermine the competition when he said today that his company would emphasize profits in the second quarter.
“When it comes to turning up the heat, it’s a question of managing tactically, in the right way by combining your aggressiveness, market position and margins in the right way,” Kallasvuo said in a conference call this morning.
For the record, Nokia posted $13.4 billion in revenue for the quarter, up 4 percent over the year-ago quarter, while its net profit shrank 7 percent to $1.3 billion. Operating margins-a closely watched metric of profitability-declined to just less than 13 percent from 14.4 percent in the year-ago quarter.
A 5-percent decline in mobile-phone revenue was nearly offset by a 28-percent rise in the sales of “multimedia computing devices,” the vendor’s ponderous tag for its N series smartphones. The smartphone sector remains a smaller cousin to mainstream mobile phones, but fetches higher average selling prices, fatter margins and is growing more quickly. Thus a strong showing in that market segment reflects positive positioning for the future.
Improvements to gross margins, effective cost controls and strong results in the growing, lucrative smartphone segment seemed to win over investors, despite the drop in profit and operating margins. Wall Street drove up the price of Nokia’s stock this morning more than 3 percent to $24.62 at mid-morning, above its 52-week high.
The slight decline in mobile-phone revenue appeared to reflect Nokia’s strategy of incrementally lowering prices on its handsets in emerging markets such as India, where it already has a massive market-share advantage over rivals. (Nokia is widely credited with having 65-percent share in India, the world’s fastest-growing market.)
Nokia forecast flat growth for the second quarter but its forecast of further market-share gains for