July 17 (Bloomberg) -- Nokia Oyj, the world’s largest mobile-phone company, may be losing smart-phone customers by failing to come up with applications and designs to take on Apple Inc., analysts said.
Nokia plunged the most in more than five years yesterday, shaving 6.1 billion euros ($8.6 billion) off its market value, after lowering targets for market share and profit margins.
“This is a very tough spot for Nokia to be in right now,” Colin Gillis, an analyst at Brigantine Advisors in New York, said in a Bloomberg Radio interview. “They’re going to need the types of devices that people can use to download applications and the kind of devices that people can be interactive with, the types of devices we’re seeing out of Apple.”
Nokia’s share of the smart-phone market was 41 percent in the second quarter, down from 62 percent in 2005. Nokia estimates its overall market share was 38 percent in the period, down from 40 percent a year earlier. The overall share will be little changed this year, compared with a previous forecast of an increase, the Espoo, Finland-based company said yesterday.
Instead of building a single flagship device such as Apple’s iPhone, Nokia has multiple smart-phone lines like the E Series and N Series, as well as music phones. That approach makes it difficult to attract software developers, who prefer to write programs for a single platform with a large user base such as the iPhone than tailor their applications for a variety of handsets, said Broadpoint Amtech Inc.’s Mark McKechnie.
“They do need to figure something out to keep themselves relevant for users,” the San Francisco-based analyst said. “The smart phone is critical to maintain a lead in the overall handheld market.”
Stock Performance
The operating margin in the main devices and services division will be little changed in the second half from the first, when it was 11.3 percent. Nokia earlier predicted the margin would be in the “teens.”
Nokia plunged 1.63 euros, or 15 percent, to 9.47 euros in Helsinki yesterday, the most since April 2004. Before that, the stock was little changed for the year.
Nokia won’t return to its days of 40 percent share of the overall mobile-phone market and 20 percent operating profit margins, said McKechnie, who rates Nokia shares “neutral.”
Nokia anticipates the global handset market will shrink about 10 percent in 2009 because of slumping economies and consumer spending. The market for smart phones, which can run computer-like applications, is the industry’s fastest-growing segment, according to researcher Gartner Inc.
Software Battle
“Competition is increasing in the smart-phone area as many participants rush into one of the few growing markets,” Chief Executive Officer Olli-Pekka Kallasvuo said on a conference call with analysts yesterday.
Those rivals include Palm Inc., which last month started selling its Pre model and opened its App Catalog. Research In Motion Ltd., the maker of the BlackBerrySamsung Electronics Co. have also opened applications stores. smart phones, and
Another dominant software player making inroads in the market is Microsoft Corp., whose Windows Mobile operating system works on Samsung, Sony Ericsson Mobile Communications Ltd. and HTC Corp. phones. Google Inc. is also aiming for a share of the pie with its Android mobile operating system.
Nokia has been under siege before. Its global market share fell to the lowest in five years in 2004 as customers picked clamshell phones made by Motorola Inc., Samsung and Sony Ericsson, a trend Nokia had discounted. Nokia fought back with clamshell models, clawing back market share and reaching 40 percent in 2007.
N97 Debut
The Finnish company began to refresh its smart phones last month with the N97, which combines a touch screen and a snap-out keyboard. The device sold 500,000 units in June, Kallasvuo said on the call yesterday. Cupertino, California-based Apple sold more than 1 million units of its latest model, the iPhone 3G S, in the first three days of its debut last month.
Software downloads also have Nokia management’s attention. Ramping up the online Ovi Store for applications is central to Kallasvuo’s vision of Nokia becoming a software provider that gets revenue from customers continuously, and not just every few years when they buy a new mobile phone.
Creeping Up
Nokia’s share of worldwide smartphone sales fell to 41.2 percent in the first quarter from 45.1 percent a year earlier, according to Gartner, while Apple’s doubled to 10.8 percent. Nokia shipped 103.2 million phones in the quarter, a 15 percent drop from a year earlier, while its smartphone sales increased 10 percent to 16.9 million units.
Second-quarter net income at Nokia fell to 380 million euros from 1.1 billion euros a year earlier, while revenue slid 25 percent to 9.9 billion euros.
“Nokia is way ahead in all regions of the world, except the USA, where it is being battered by Apple and BlackBerry,” said Neil Mawston, a director at researcher Strategy Analytics Ltd. in Milton Keynes, England. “The USA is now the world’s most important smartphone market and Nokia urgently needs to recover in that region if it is to be taken seriously as a mobile consumer services player.”
The company said yesterday it lost overall market share in Latin America, the Asia-Pacific region and North America from a year earlier.
“They need to get a better user interface on their devices, and they need to do that very soon,” said Carolina Milanesi, an Egham, U.K.-based analyst at Gartner.
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