Analyst: Nokia ‘smells blood,’ may cut prices to squeeze Motorola: Smaller players could be forced to consolidate or retreat to home markets

Nokia Corp. may take advantage of Motorola Inc.’s current financial and portfolio weaknesses by lowering its handset prices incrementally, which could drive further consolidation among the industry’s smaller, weaker vendors, according to Ben Wood, director of clients for Collins Consulting Services in the United Kingdom.
Pressure on vendors to merge, be acquired, retreat to home countries or shut their doors may affect Japanese and Korean handset vendors as well as original design manufacturers, Wood said.
Whether the number of companies falling to consolidation increases or the magnitude of the companies exiting the market is greater underscores the topic’s subtleties, according to the analyst. Both consolidation threads are already taking place and a number of handset companies are already “on crutches.”
“We’ve reached a phase where Nokia can smell blood in the water,” Wood said. “A number of companies are weak. Motorola isn’t going to go away, but there’s an opportunity for Nokia and others to make aggressive moves on pricing to squeeze Motorola while it’s having a tough time.”
Wood pointed to Nokia CEO Olli-Pekka Kallasvuo’s statements in the vendor’s fourth-quarter earnings call earlier this year.
“Kallasvuo said on that call, in a glorious Finnish accent, ‘We think it’s time to turn up the pressures. Slowly, slowly, slowly,'” Wood said. “Those three words should be the most terrifying words to any competitor. Nokia might drop only a few bucks off the price on an entry-level product, but that’s a 10-percent drop. For some companies, that’s more than their entire margin on a product.”
Samsung Electronics Co. Ltd., stagnant in market share for two years, has just appointed a new CEO of its telecom unit, G.S. Choi, who previously led the vendor past Sony Corp. in the television market, the analyst said. (Samsung has yet to announce or confirm this appointment and did not immediately respond to inquiries.) Samsung too will be making moves to regain momentum, producing more pressure on the rest of the field.
“Choi’s going to use his consumer electronics experience to get like Nokia: a lean, mean phone-making machine,” Wood said.
The upshot?
The French vendor Sagem may feel unbearable pressures. And Japanese vendors likely will retreat to their home country, where the 50 million unit per annum sales volume may sustain them at a smaller scale. Four of the top 13 vendors in the world are Japanese, including Panasonic Corp.(No. 8 globally last year), Sanyo Corp. (No. 9), Sharp Corp. (No. 11) and NEC Corp. (No. 13).
“The spectacular disappearances will be those that depend on the global GSM market for their bread-and-butter,” the analyst said, without naming companies. “If you’re not a player now, you’re not going to be a player in the future.”