Nokia: Dialing North America
Nokia CEO Jorma Ollila is fond of rattling off the areas of the world where his company ranks No. 1 in wireless handset sales. Take the fourth-quarter earnings conference call on Jan. 26, when Ollila boasted about Nokia's dominance in China, Russia, and India. To Ollila's dismay, a key area is notably missing from the list: North America.
In the continent that includes the U.S., Nokia (NOK) has 20% share, lagging behind Motorola (MOT), which has 35%, according to researcher Gartner. And while Nokia grabbed global share last year, growth in North America was flat, says Gartner analyst Hugues De La Vergne.
Ollila is intent on changing the status quo, and he took pains on the conference call to say Nokia aims to achieve the No. 1 position in North America. "Being above 20% market share is a good first step," Ollila said. "Next is establishing ourselves as the strong contender for the No. 1 position."
Nokia has long coveted a prime spot in the hotly contested -- though still lucrative -- North American market. But the quest is taking on added urgency. Under Chief Executive Ed Zander, Motorola is on the rebound after a slump earlier in the decade. Its sleek, half-inch-thick Razr handset has fueled rapid sales growth and transformed Motorola into a style leader (see BW Online, 10/18/05, "Motorola's Razr Thick Profits"). What's more, Motorola has a long roster of successor phones and other niche products that, analysts say, make Nokia's job tough.
In the fourth quarter, Motorola saw handset unit sales jump 40.6%, a bigger increase than for any other major vendor, including Nokia, which had a 27% increase, says IDC. Motorola's mobile-phone revenue rose 30% in the period, while Nokia's analogous mobile-phone and computing revenue was up 11%.
What's Ollila's latest strategy for conquering North America? For one, he's increasingly targeting high-end phones and other devices aimed at niche markets, a strategy that's serving Motorola quite well. A big bet: music phones, which are expected to be as big in 2006 as camera phones were earlier in the decade. Nokia will soon start shipping seven more music phones, effectively more than doubling its count in North America.
The Nokia N91, due to start shipping soon, is a cross between a phone and the iPod digital-music player in look and feel. It's among the first of an array of music phones with special keys dedicated to music functions, allowing for easier navigation of music libraries, says Tim Eckersley, senior vice-president for sales and marketing at Nokia in North America. It's also making headway in mobile-computing devices with the 770 Internet Tablet, which is already doing very well (see BW Online, 2/7/06, "Nokia's New Message").
Nokia is also hoping that Motorola's best-selling Razr, which debuted in 2004, may run out of steam soon. Phones based on the Razr design account for about 30% of Motorola's total handset volume, says Paul Sagawa, an analyst with Sanford Bernstein. And while Motorola keeps adding new features and colors (a Razr in pink was a hot seller at Christmas), the design could soon start feeling stale, Sagawa says.
To compete with the popular Razr, Nokia is expected to roll out its own take on ultra-slim phones in the next two months. Nokia declines confirm its plans, but it has hinted it's taking a serious look at the ultra-slim design (see BW Online, 12/5/05, "The Leading Edge is Razr-Thin").
NOT STANDING STILL.
Says James Burke, senior director of product operations for Motorola's mobile-device unit: "Nokia is a formidable competitor, but I'm not feeling like I'm under siege." Still, Motorola isn't taking any chances. In its favor is the latest variation of the Razr, the new Slvr (pronounced "sliver"), which is expected to make a big splash this year. On Jan. 31, wireless operator Cingular announced that it will offer an exclusive $199.99 Slvr with iTunes, which will carry up to 100 songs, downloadable from Apple's (AAPL) iTunes digital-music service.
This ultra-thin phone is designed to hit Nokia where it hurts. Nokia has long excelled at making candy-bar-style phones, and the Slvr "is for someone that loves the bar phone and wants to be able to slip it in their pocket and forget that it's there," says Steve Lalla, Motorola's vice-president for mass-market products. The device could sell as many as 20 million units in 2006, figures Ittai Kidron, an analyst with CIBC World Markets.
Another boost for Motorola could be the introduction of its much anticipated Q phone. A rival to Research in Motion's (RIMM) BlackBerry and Palm's (PALM) Treo, Q is as thin as the Slvr, yet full of features, including a new Microsoft (MSFT) operating system for e-mail, a camera, and more. Sources say it's expected to be available in Verizon Wireless stores by the end of March or early April.
COUPLING WITH CARRIERS.
While Q might not ship in huge volumes, Deutsche Bank analyst Brian Modoff anticipates that it should help Motorola's margins. In the fourth quarter, Motorola's mobile-phone margins slipped to 10.2%, vs. 10.6% a year earlier. Nokia's margins dropped to 17.1% from 18.9%.
Slvr with iTunes for Cingular showcases Motorola's growing efforts to make certain features and phone designs available exclusively to particular service providers -- a smart move that could help it hold onto and expand its share. Such products help Motorola strengthen its relationships with carriers looking to differentiate offerings from its rivals, says Bill Hughes, an analyst with consultancy In-Stat. Motorola "is going to create a device for every carrier," he says.
It's also increasingly going after small but highly profitable niches, rather than trying to please a broad swath of consumers, a centerpiece of Nokia's strategy, analysts say. That's key in a market where nearly 80% of consumers already own cell phones and many want distinctive features before being induced to switch. "[Motorola is] clearly reacting to a lifestyle market opportunity," says Richard Doherty, director of Envisioneering Group, a consultancy in Seaford, N.Y.
Consider Pebl (pronounced "pebble"), a flip phone that looks like a black pebble worn smooth and round by the waves that washed it ashore. "It's for people who don't like complexity of technology," says Burke. Yet, Pebl's simple design is deceptive: The handset is equipped with a video camera and integrated Bluetooth connectivity, allowing the phone to connect to wireless headsets.
CIBC's Kidron expects Pebl to sell 4 million to 5 million units in 2006. On Jan. 31, T-Mobile announced that Pebl is available in its stores.
This year, Motorola will also increasingly differentiate its phones by creating devices designed to work with specific home-brewed and partner-offered services -- particularly those relating to music. While it will continue working with Apple -- last fall, the two companies released their first joint product, the Rokr phone able to download music from iTunes and store up to 100 songs -- it's also looking to offer other types of music capabilities, says Burke.
CONVINCING THE SKEPTICS.
"The market is increasingly looking to richer experience, beyond what Apple is capable of," Burke says. "If we could go there with Apple, we would." (See BW Online, 11/23/05, "The Rokr's Flat Notes".) So this year, Motorola is looking to roll out its own iRadio service, allowing radio fans to download channels of radio content, songs, and podcasts onto their mobiles.
Nokia, too, is aiming to improve at targeting specific segments as it angles for a bigger slice of the North American market. In 2005, it conducted a worldwide segmentation study, trying to determine what various market niches want. The study included more than 60,000 hours of interviews conducted in 18 different countries, leading analysts to expect more niche products from Nokia this year. "Motorola has more features, while Nokia is known as cheaper, reliable," Hughes says about smart phones in particular. "The revenue is going to the people who have different features."
Analysts are skeptical that Nokia's bets will quickly pay off on this side of the Atlantic. "While Nokia could gain some share, they are definitely not going to displace Motorola," says Kidron. So it may be a while before Ollila is able to add North America to that list of regions Nokia dominates.