A mistake in a media report earlier this month suggesting that Nokia Corp. had sold as many as 450,000 units of its high-end N95 handset in the United States during the second quarter immediately set chins to wagging.
The N95 packs advanced Web browsing, multimedia and personal information management features and sells through alternative retail channels in the U.S. for a whopping $750. Network operators, which control the predominant retail channel in the U.S., do not offer the device.
The report proved false, the result of an innocent misunderstanding between an ABI Research analyst and a media outlet. The number of N95s sold in the U.S. in the second quarter is likely far less, Nokia and ABI subsequently said. Nokia did report selling 1.5 million of the units worldwide and, ABI said, it holds 56% of the worldwide smartphone market.
Nokia does not report regional sales numbers for its various products. The vendor trails other smartphone purveyors in North America (see chart), though there are glimmers that Nokia’s efforts are paying off.
A numbers game
But the intense interest in the erroneous report’s possible implications-both the ABI analyst and Nokia received myriad phone calls, they said-underscored how closely the handset market is being watched for signs of change. This is particularly true in the wake of Apple Inc.’s forecast that it plans to sell 1 million iPhones in the third quarter in the U.S.
The essential questions raised by the erroneous report:
Are U.S. consumers in significant numbers ready to pay top dollar for unsubsidized, high-end devices? (iPhone sales, if realized, would suggest “yes.”) Will Americans warm to such offerings from vendors without Apple’s installed base of techno-lusty fans? Finally, is Nokia-by far the world’s leading handset vendor, which trails badly in the U.S. despite renewed efforts-making headway here?
The jury is out on the last two questions. But the jury clearly is paying close attention.
“Globally, Nokia definitely has done well with the N95,” said Shailendra Pandey, an analyst in ABI’s London office and the source of the misunderstood sales data. “In North America, with the iPhone coming out, there are more consumers willing to pay the full price for high-end handset models. In that sense, I think Nokia is experiencing better sales from their retail outlets. And network operators are watching consumer interest in these high-end handsets, because they would love to sell unsubsidized, high-end handsets.”
Pandey had told a reporter earlier this month that, given limits to Nokia’s alternative channels, the vendor could not have sold more than 30% of its 1.5 million N95s in the U.S. That was a structural cap evident from ABI’s sales models, Pandey said, but he did not mean to imply that Nokia had in fact sold 30% of those 1.5 million units in the U.S.
Prospects for Nokia
Nokia’s prospects in the U.S. market have several facets, some of which are gradually shifting in its favor, Pandey said.
Nokia, of course, has famously resisted the costly customization process demanded by U.S. network operators. Yet since Olli-Pekka Kallasvuo’s ascension to CEO of the Finnish company, Nokia has committed to working with each of the top-tier U.S. operators to accommodate their needs and avail itself of the operators’ leading retail channels.
Meanwhile, Nokia has ardently pursued alternative channels-it calls them “complementary channels,” in deference to its operator partners-to develop a direct-to-consumer, unlocked device market. The vendor knows this strategy could free it to present its own brand-based value proposition, yield higher margins and feature its high-end products in a market numbed to handsets’ actual value by operator subsidies.
To that end, Nokia has opened a number of flagship stores in a handful of U.S. markets and struck deals with the likes of big-box retailer CompUSA to develop a parallel retail track to its work with network operators. According to the Finnish company, the N95 is available at its flagship stores in New York and Chicago and its N series in general is sold through 28 independent retailers in Manhattan alone. (Another device, Nokia’s N75, has been available at AT&T Mobility, but according to several analysts, sales have not been remarkable.)
Open access potential
Moreover, rules for the upcoming 700 MHz auction in the U.S. will set aside some spectrum, however limited, for companies that allow unlocked devices to run on their network.
(One obvious limitation to Nokia’s efforts here: It has focused on the GSM technology used predominantly across its global markets, while shedding its own efforts to develop CDMA technology used by 60% of U.S. consumers, in favor of partnerships with CDMA handset vendors.)
The potentially significant sales of the N95 here-whatever the actual number-is viewed as evidence that this dual strategy is working, Pandey said. And recent ABI smartphone vendor rankings show that, despite Nokia’s position behind rivals such as Research In Motion Ltd., Palm Inc. and Motorola Inc., it has lost far less market share to RIM and smaller competitors over the past year than its better-positioned rivals.
“These are favorable developments for Nokia,” Pandey said, “and may lead to more Nokia devices being available in the U.S. The data is good for vendors of all high-end devices.”