There is a chink in Nokia Mobile Phones’ armor, and it is the vendor’s market share in the cdmaOne handset business.
While Nokia sells the most popular handsets in the world, holding more than 30 percent of the total business, its share in the cdmaOne market is minimal, and it continues to struggle to make inroads with a carrier that is set to become the largest wireless operator in the United States.
The cdmaOne handset market, dominated by South Korea and the United States, today is relatively small compared with the Global System for Mobile communications and Time Division Multiple Access handset market. The the cdmaOne space is the fastest growing and the most competitive, say analysts. Success in today’s generation of Code Division Multiple Access technology will guide handset vendors’ success into the third-generation market. The majority of this equipment will be based on the CDMA air interface. Carriers planning to deploy W-CDMA technology in the coming years will rely on Nokia to be the dominate supplier.
“Experience in today’s generation of CDMA is key if they are going to be a large 3G player,” said Phillip Redman, associate director with The Yankee Group in Boston. “CDMA is Nokia’s weakest product, and we don’t see much improvement this year.”
According to research firm Dataquest, the Finnish operator captured about 10.6 percent of the cdmaOne handset market in the third quarter 1999, up just 1.3 percent from the second quarter. Nokia did not return phone calls, but it has told the analyst community its goal is to capture 30 percent of the cdmaOne handset market by the end of this year. Many analysts aren’t modeling that figure.
“I’m not modeling 30 percent of the market,” said Jeffrey Schlesinger, wireless equipment analyst with Warburg Dillon Read in New York. “I believe that to get those kinds of market-share rates some things will have to happen in terms of clearing technical issues.”
Nokia’s main technical struggle is with Bell Atlantic Mobile, a carrier that is set to control 20 million customers after its merger with the U.S. properties of Vodafone AirTouch plc and GTE Corp.
Bell Atlantic has rejected Nokia’s handsets since 1998 because they couldn’t pass its quality standards. Only recently has the carrier begun to sell Nokia’s 5160 model in its stores. It continues to reject Nokia’s 6100 series of phones.
“We are selling the 5160. It’s popular because of the colored face plates,” said Andrea Linskey, spokeswoman for Bell Atlantic. “I can’t speak as to what we’re doing moving forward. We put all of our phones through stringent testing.”
Sources close to Bell Atlantic say the carrier still is not satisfied with the 5160 but needed to offer it to compete with compelling offerings from AT&T Wireless Services Inc. and others. Part of Nokia’s problem, say analysts, are faulty in-house chipsets.
“There seems to be a lot of issues there,” said Brian Prohm, analyst with Dataquest in San Jose, Calif. “The Nokia brand and look is pretty powerful. The fact that operators won’t accept product is a pretty scathing indictment of what kind of quality issues this product has.”
Sprint PCS, U S West Wireless and Bell Mobility are among North American cdmaOne operators that offer Nokia handsets. Sprint PCS reports no problems.
Wall Street had hoped Nokia would buy Qualcomm’s handset division, which Qualcomm recently sold to Japanese vendor Kyocera Corp. to bolster its position in the cdmaOne handset market. Qualcomm, however, was looking for a buyer willing to purchase its chipsets and lease Qualcomm’s engineers.
“The general feeling on Wall Street is that Nokia should have bought Qualcomm’s handset division,” said Thomas In, wireless analyst with New York-based Galleon Group, a firm that manages a $2.5-billion hedge fund. “I’m curious and most of the street is curious about what their strategy is.”
The cdmaOne handset market promises to become even more crowded this year, warn analysts. L.M. Ericsson plans to introduce handsets, Kyocera will pump money into Qualcomm’s handset division to become an aggressive player and smaller players like Neopoint that offer smart phones will ramp up production. Dominate cdmaOne vendor Samsung Electronics shows no sign of losing market share either. Price points continue of fall rapidly.
Analysts say it’s virtually impossible for outside vendors to penetrate South Korea today as Samsung and Lucky Goldstar can produce handsets too cheap for other vendors to compete.
“If Nokia sells handsets in Korea, they will get killed on price,” said Redman. “They wouldn’t have much of a price or profit margin.”
Motorola Inc. has been successful partnering with handset vendors in South Korea to penetrate the market. WDR’s Schlesinger said Nokia may do the same to penetrate markets throughout Asia.
“The resources are there,” said Prohm. “The question is, can they make the right product at the right price in an environment that is much more competitive and robust than TDMA and GSM? … There are a lot of players looking to become serious players in CDMA.”
