From Nokia, Something for Everyone

Its rush of new phones may win it more market share

Thumbs twitching in anticipation, gawkers lined up five deep in a corner of Nokia Corp.'s (NOK ) 1,500-square-meter booth at the mid-March CeBIT technology trade show in Hannover, Germany. The mostly teenage visitors couldn't wait to get their paws on a radical new device called the N-Gage, a hybrid mobile phone and portable game console that makes Nintendo Co.'s (NTDOY ) popular Game Boy look like a relic. "The kids at the booth just wouldn't put the thing down," says Adam Comiskey, commercial director for THQ Wireless, a games maker based in Krefeld, Germany, that is planning to launch three N-Gage titles this year.

Palpitating teens are a far cry from the on-the-go executives who were once the mobile industry's bread and butter. But then, Nokia has long excelled at spotting new niches for wireless phones, from price-conscious consumers to fashion mavens. Indeed, segmentation is so fundamental to the Finnish giant that last summer it broke up its $24 billion mobile-phone business into nine units, each charged with chasing different market opportunities. "Nokia is way out in front on this," says analyst Andy Buss of researcher Canalys in Reading, England.

The first fruits of that reorganization are coming to market -- and they could help Nokia pull even further ahead of rivals. At CeBIT, Nokia's mobile entry products group, which designs phones for emerging markets, showed off a bare-bones model that carriers can offer for next to nothing. The imaging group is pushing a $450 camera phone aimed at globe-trotting execs. And on Mar. 17, Nokia rolled out five phones that work on CDMA networks -- a market where Nokia trails rivals Motorola Inc. (MOT ) and Samsung Electronics Co.

The product assault -- Nokia introduced a record 34 phones in 2002 and will likely roll out two dozen this year -- signals the company's determination to fan growth in the sluggish mobile sector. "Our product renewal has never been as strong as it was in the past six months," says CEO Jorma Ollila.

Competitors are starting to catch the same wave. No. 2 Motorola is flooding the market with everything from a surround-sound stereo-music phone to a model that runs Linux software. Siemens Mobile paraded its new Xelibri line of wildly designed phones at a London fashion show in late January. One responds to voice commands and is worn like a pendant. And at CeBIT, Samsung showed a prototype of the first phone built on the PalmOS software used in handhelds.

But will this abundance of new offerings be enough to kick-start growth? Unit sales of handsets grew just 6% worldwide in 2002, to 423 million, says research group Gartner Inc. That's way down from the 40%-plus growth of the go-go 1990s. Worse, growing numbers of cheap handsets are pulling down average prices faster than vendors can pump them up with new premium models. That's keeping industry revenues flat and pushing the likes of Motorola and Sony Ericsson Mobile Communications into the red. "In a mature market, you have to try something different," says Gartner mobile analyst Ben Wood.

The diversity of Nokia's lineup helped the company raise its share of the global market by one percentage point, to 36%, in 2002, outselling its three closest rivals combined. Nokia will probably rack up another point or two this year. Phone revenues will climb 14%, to nearly $28 billion, predicts Merrill Lynch & Co. But losses at the mobile infrastructure unit will crimp profit growth.

There's a danger that Nokia is tackling too much. Buyers could be overwhelmed by so many choices. Nonetheless, Nokia and its rivals have to take big risks to reignite the buzz in mobile phones. If the teen mob at CeBIT was any indication, the Finns are heading in the right direction.

By Andy Reinhardt in Hannover

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