Nokia Corp.’s strategy to regain a dominant market share in the United States will be driven by forthcoming product launches that will strengthen its hand against its arch-rival Motorola Inc., according to Tim Eckersley, senior vice president for Nokia Americas.
Those product launches—”there are good things coming” in e-mail-centric and multimedia devices—have been slower than anticipated, Eckersley acknowledged. But Nokia remains committed to the U.S. market in both GSM and CDMA, due to the market’s outsized influence on global trends.
Eckersley’s comments represent a relatively rare public statement of Nokia’s U.S. strategy, which may be welcomed by investors and analysts somewhat anxious to understand precisely what the world’s largest handset vendor is doing to reassert itself domestically. Analysts’ concerns, run the gamut from Nokia’s will to succeed in the U.S. to its need for a mid-tier hit to capture American consumers’ imagination and envy.
Nokia on North America
The North American market represents a little more than 8 percent of Nokia’s global revenue, and the U.S. is but one of about 130 countries in which the vendor is a contender if not a market leader.
“The U.S. market, as stated by our [chief executive officer], Olli-Pekka (Kallasvuo), is more significant than other markets that are similar in size, in terms of the opportunity to grow our brand, our portfolio and our businesses such as multimedia and enterprise,” Eckersley said. “Some of those categories started here and are driven from here.
“If you look at the core consumer segments for the multimedia product category, for instance, 25 percent of the global market opportunity actually exists in the U.S. market,” he added. “So the U.S. represents a disproportionate share of the strategic importance of the overall market, from Nokia’s perspective. That’s why it’s so critically important for us to drive towards a higher level of success than we currently enjoy.”
Eckersley pointed to Nokia’s big successes in mid-tier products as proof of Nokia’s will and ability to compete here, a point echoed by analysts.
Nokia’s biggest issue in attaining that much-coveted success is matching its product portfolio to the demands of its network operator clients, Eckersley said. That means clamshell form factors, matching the thin profile made fashionable by Motorola’s Razr and feature-rich handsets, particularly in the higher end of the mid-tier consumer market.
The Nokia executive said that the company’s main challenge lies in product design and engineering, and he cited Nokia’s decision to create a U.S.-centric design team out of its former CDMA research-and-development facility in San Diego as a significant move in the right direction. Results from that effort are due to market next year, he said.
On the critical question of its CDMA strategy, Eckersley said that—in the wake of its decision not to proceed with a joint venture with Sanyo Corp.—partnerships with multiple original device manufacturers, including Nokia design and engineering investments in those partnerships, would allow the world’s largest handset vendor to compete in the States.
“One of the challenges driving our strategy is the shift in the overall CDMA market on a global scale that makes CDMA a bit less relevant in all places except North America,” Eckersley said. “We still believe that in order to achieve our goals in North America, we have to drive a product-based strategy that addresses the needs of CDMA operators. To do that, we are driving a multiple-ODM-based strategy.”
The Nokia executive said his company would not rely on simply “re-badging” ODM-sourced phones to address the U.S. CDMA market. And he declined to respond to the question of whether a favorable resolution of its cross-licensing dispute with Qualcomm Inc. over CDMA-related and other patents might offer new opportunities for Nokia’s CDMA strategy.
$150-plus opportunity
And Eckersley’s view on a “mid-tier hit” that analysts are insisting Nokia needs to counter Motorola’s Razr-fueled momentum?
“Strong products with broad consumer awareness can only help.”
But he pointed to Nokia’s success in its mid-tier portfolio and that his company’s average selling prices have climbed quarter-over-quarter for more than a year in the U.S.
“The bigger opportunity ahead of us,” he said, “lies above that $150 category where we can make some strides in developing not only higher-end, third-generation products in both CDMA and GSM, but also supplementing them with multimedia products and enterprise products that will improve our position at the higher end of the marketplace where there’s still opportunity for us to grow.”
Analysts’ views
Ask analysts to comment on Nokia’s U.S. challenges and what strengths it brings to the task, however, and they have copious advice—as well as praise—for a giant that has stubbed its toe on a rock-strewn American mobile market.
So, what’s the problem?
Strategy Analytics’ data reflects that in GSM technology, Nokia’s strongest suit, the vendor’s market share has slipped year-on-year since 2003, when it ruled the U.S. with nearly 50 percent of the market. Last year, Nokia had just 26 percent of the U.S. GSM market, though data for the first half of 2006 suggests that Nokia has slowed its GSM slide. Meanwhile, rival Motorola used the Razr-fueled marketing mania to increase its market share from 13 percent of the domestic GSM market in 2003 to more than 36-percent U.S. market share last year, when it decisively overtook Nokia.
Core strengths
Two leading analysts said Nokia clearly has the ability to respond effectively.
“Nokia understands its failings and that makes them dangerous,” said Avi Greengart, handset analyst with Current Analysis.
Chris Ambrosio, director of Strategy Analytics’ wireless device strategies service, said that Nokia wields enormous brand strength, price competitiveness and profitability on entry- and mid-tier products in GSM—”nobody can really touch them in those lower tiers”—and its phones offer attractive user interfaces.
“There’s a lot they’re doing right,” Ambrosio said. “The issue really is: does Nokia want or need to compete here?”
In Ambrosio’s view, Nokia has three main challenges to meet in the U.S.
Carrier challenges
First, the carrier-controlled U.S. market is not well-suited to Nokia’s strengths. Second, a carrier-dependent market makes it more difficult for Nokia to distinguish itself among competitors. And third, the vendor suffers from a general lack of compelling new products that meet the new design challenge from Motorola.
Nokia has given the appearance that it is unwilling to sacrifice margins to meet extensive, carrier-requested customization of its handsets, according to Ambrosio. Conversely, the vendor’s broad portfolio of GSM products at modest price points at GSM carriers T-Mobile USA Inc. and Cingular Wireless L.L.C. is a major strength.
Nokia remains captive to the carriers in terms of the latter’s decisions on what handsets to emphasize during quarterly marketing pushes, or “drive periods,” Ambrosio said. The vendor doesn’t have a U.S. portfolio, particularly in CDMA, that would make that marketing blitz cost-effective at the level that Motorola has done with the Razr or LG Electronics Co. Ltd. with the Chocolate. So the Finnish vendor is constrained from setting the marketing agenda to focus on one or two handsets as it would in other markets.
Finally, Ambrosio said, Nokia has to get its design act together.
“Nokia has struggled for four years to produce a product that can compete with LG, Samsung (Electronics Co. Ltd.) and, now, Motorola in that thin clamshell form factor,” Ambrosio said. “The clamshell is one example, but you can talk about camera phones as well, or the general lack of color [screens] in their products. Nokia has struggled to keep up with carriers’ demands on handset specs here. It depends on getting the right people and on an internal willingness to look at their core designs and make changes, if needed.”
Nokia has a long-term plan for converged media products in Wi-Fi and WiMAX, and in that plan the U.S. is “the market to be in,” Ambrosio said. But that’s years down the road, eons in the wireless business.
According to Greengart, Nokia’s carrier relationships are excellent and, with Motorola’s ascendance, carriers might warm to a stronger Nokia presence as a balancing factor.
“There’s no question Nokia makes wonderful phones,” Greengart said. “And carriers are risk-averse, so Nokia has credibility and capability.”
In the U.S., however, GSM carriers such as T-Mobile USA and Cingular may not want to subsidize Nokia’s high-end devices and that’s pushing the vendor to independently extend its presence to consumers through other means—online and through flagship stores in New York, Chicago and Los Angeles, Greengart said. This strategy may pay off in the long-run.
“The American consumer is the richest consumer in the world,” he said. “Are we buying expensive smart phones? No. Could we? Yes.”
Greengart said there’s anecdotal evidence to suggest that U.S. sales of Nokia’s N80 smart phone are catching fire. The phone is a quad-band, W-CDMA-equipped, Wi-Fi-enabled, slider device with a three mega-pixel camera and multimedia capabilities; it sells for $600 from Nokia online.
Conversely, Greengart views the Pantech-made, CDMA “Nokia 6215i” for Verizon Wireless as “a dangerous gamble,” because in his view it dilutes Nokia’s brand strength. The phone is well-made but lacks a competitive price point—at $50 with two-year contract, it bumps up against Samsung’s SCH-a870 and several LG products.
Nokia has met the style issue at the high-end, but that’s outside the sweet spot for mid-tier phones in the U.S. market, Greengart said. In the sweet spot, Nokia cannot afford to simply match Motorola’s Razr for thinness and industrial design. It needs its own iconic product.
“Thin has become a categorical expectation,” the analyst said. “Nokia needs a mid-tier hit.”
On the other hand, Greengart said, Nokia obviously has what it takes.
“The company’s humility and understanding of market dynamics is good news,” the analyst said. “They won’t stop until they’ve got it right.”
