Nokia’s Nroblems

Nokia’s financial report card for the fourth quarter 2006 shows that the Finnish giant posted higher revenues ($15.22 billion), higher earnings ($1.65 billion), and higher share of the global handset business (35.2 %.)
n73tiny.jpgNokia’s margins declined a fraction, and so did the average selling price of their phones, about to 89 Euros. You can correlate that to a series of problems, most of them starting with the letter N. Lets call them nroblems.

Nokia’s mobile phone shipments to North America, one of the more affluent mobile markets in the world, skidded about 40% to 5.9 million units for the quarter. Ouch! NA is the only other market where there is a semblance of demand for high-end phones.
Talking about high-end phones, the second problem Nokia has on its hands – the slowing sales of their highend N-Series phones. (Why they continue to refer to these devices as “multimedia computers,” I don’t understand. Computer are work, mobile are fun!)
The N-Series sales are down in North America and Europe, two markets where they should be selling. I think with N-Series, Nokia has overshot the market. For all the hype, they could sell only six million N-Series phones in the quarter, and that was before Steve Jobs showed off the iPhone. How many people will be willing to drop $499 on a Nokia, before checking out the iPhone?
nokiaeseriestent.jpgThe N-Series phones are not thin (which is in) and cost too much. (N76 is supposed to fix that, but lets see.) They are actually doing too many things, and don’t inspire owner-lust. N73 is the only exception. In comparison, their E-Series seems to be a runaway hit because they have a specific purpose: they are business phones. By the way, where is the Nokia N75 music phone designed for Cingular’s 3G Network?
The third Nroblem is the demand of cheap Nokia phones is going up in new markets, but that doesn’t add much to the bottom line. As we had pointed out earlier this week, Nokia like it peers and closest rivals, Motorola and Samsung, has been pushing hard in the emerging markets in Latin America, India and China, where the demand is primarily for low cost handsets.
These problems are not going away anytime soon. “Challenges continue in the first quarter as we operate in an environment where customers want lower levels of inventory and where growth in the wireless market is skewed to low- priced, basic-featured cell phones instead of higher-priced, full-featured phones,” said Rich Templeton, Texas Instruments, president and CEO. TI had reported lukewarm results earlier in the week and is a key supplier to Nokia.
Nokia simply needs to sell more of these high margin N-Series phones to make up for low end of the business. It has to post a strong comeback in North America for precisely the same reasons. The only problem is that in its own backyard, Motorola is no pushover!
Photo of Nokia Tent at CES by Katie Fehrenbacher.