Nokia feels heat as rivals cut prices

08 Sep 2008

Nokia's share price tailspin shows the jitters in both the stock and the handset markets.

Nokia's stock slumped 9.6% last Friday after warning that it expected to lose market share in the third quarter.

In the current financial climate, investors are looking for bad news. They marked down the stock even though the handset leader still tips 10% growth in unit sales for the full years and thinks it can grow market share.

Nokia sold 435 million phones in 2007, with a market share of 37.8%, according to Gartner.

The warning tells us something about the state of the global handset market. Its competitors are buying market share with price cuts, but Nokia says it won't follow them down.

"Nokia has not broadly participated in the recent aggressive pricing activity - as it believes that the negative impact to profitability would outweigh any short term incremental benefits to device unit sales," it said in a statement.

Nokia said delays in getting a new mid-level device to market had also affected sales.

Of course, the economic crunch is slowing sales in Europe and the US. But

Gartner's head of mobile device research, Caroline Milanesi, spun it positively, noting that the fact that Nokia took so long to feel the impact of the financial crunch was "almost reassuring".

Consumer electronics is a treacherous business. Of Nokia's three main rivals, Motorola is flatlining and Sony Ericsson has already issued two profit warnings this year.

But Nokia's strategy of high-volume, low-cost phones in the emerging markets and a steady stream of new middle and top-end products is a robust one. It's all up to the execution.

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