A spotlight on Nokia: Seeking America, exiting Japan: Verizon Wireless’ move toward LTE could provide boost

All eyes are on Nokia Corp. for the handset maker’s Capital Markets Day tomorrow in New York.
With nearly 40% global market share, the Finnish giant’s perspective is given substantial credibility, particularly in volatile economic times. And it comes on the heels of today’s warning by Research In Motion Ltd., that consumer demand is down. Nokia itself made a similar point last month.
“Investors will look for Nokia’s overall market commentary and for clues on the impact to Nokia’s margins during the downturn,” analyst Mark McKechnie at Broadpoint.Am.Tech wrote in a note to investors.
One bearish possibility, according to McKechnie:
Nokia may acknowledge that its progress in North America is stalled, even down substantially, year-on-year. If the handset market enters a “steep, multi-year down cycle,” Nokia may have to relinquish global market share or sacrifice margins, the analyst suggested.
“Investors’ focus will be on how low Nokia will guide its operating margins and its negative market outlook for 2009,” wrote analyst Ittai Kidron at Oppenheimer. “We expect margin guidance to fall within reduced expectations, but see potential downside in its guidance for the market outlook. We believe buy-side consensus (i.e., slackening consumer demand) is around a 5% to 6% decline, but believe Nokia could provide an ‘up-to-10% decline in 2009’ outlook.”
U.S.-centric analysts may also be seeking insight into Nokia’s approach to North America – especially the U.S. – in light of its positive rhetoric on the subject. Nokia has continued to struggle with about 10% market share here, according to data from Strategy Analytics.
In fact, compared with two years ago, when Nokia was neck-and-neck with Korean vendors Samsung Electronics Co. Ltd. and LG Electronics Co. Ltd. at about 15% U.S. market share each (and trailing market leader Motorola Inc.), Nokia has lost ground. Its more aggressive Korean rivals were quick to meet carriers’ customization demands, an area in which Nokia proved reluctant.
According to analyst Bonny Joy at Strategy Analytics, Nokia cannot afford to ignore the U.S., which is the largest global market for handsets-and-services in terms of revenue. But the company’s focus on GSM-based products constrains it to 40% of the U.S. market, while its “Co-DM” strategy for CDMA carriers is only a placeholder for now, Joy said. (Nokia has said it will co-develop CDMA handsets with original design manufacturers, or ODMs, for the U.S. market.)
But between 2004 and 2008, Nokia’s share of the CDMA market in the U.S. has dropped precipitously from double digits to perhaps 2% this year, according to Strategy Analytics’ data.
Importance of LTE
Nokia’s best hope – and possible strategy – for substantially increasing U.S. market share lies, in part, in Verizon Wireless’ announcement that it will pursue LTE as a so-called 4G roadmap. At that point, which may be several years out, Nokia will have the economies of scale to provide cost-effective, LTE-based handsets to much of the other half of the U.S. market, according to Joy.
In the shorter term, however, Nokia has said that its effort to make its now solely owned Symbian operating system “open source” and free of licensing costs to other vendors should help it compete in the U.S., where the Linux-based open source OS known as Android has launched.
Thus, the analyst said, relatively recent news that Nokia has opened a research center in Hollywood should be viewed more as a globally relevant play for coveted American content, rather than a U.S.-centric investment to improve its fortunes here. Another example: Nokia’s $8 billion acquisition of Navteq, and its headquarters in Chicago, reflected a global, not national, effort towards integrating location-based services.
Still, any investment Nokia makes towards improving its fortunes in the U.S. are worthwhile, according to Joy.
“Here, they have a lot of potential,” Joy said. “In Japan, in contrast, the market is one-quarter the size of the U.S. and it is dominated by incumbent vendors.”
Fleeing Japan
Joy referred to news last week that Nokia would stop trying to compete in Japan in the overall handset market, where it has never garnered more than about 1% market share. Nokia’s R&D center in Japan will continue to work on global product development, the Finnish vendor said.
“In the current global economic climate, we have concluded that the continuation of our investment in Japan-specific product variants is no longer sustainable,” said Timo Ihamuotila, a Nokia executive VP, last week.
Going forward, however, Nokia may ply the Japanese market with its profitable Vertu line of luxury handsets that cost a minimum of four figures. The Finns may establish an MVNO to promote a handsets-and-service package to support the Vertu line, according to reports.
Though the Finnish giant has figured out regional and national tastes well enough to garner a nearly 40% global market share, it has yet to effectively address U.S. sensibilities – as filtered through the four dominant carriers that require expensive customization on handsets they sell through their channels. Those channels comprise more than three-quarters of all mobile-related, retail sales, according to several estimates.
Yet, to one analyst, Nokia appeared to be working on just that objective and may well show improvement next year.
“Nokia still needs models that are directly comparable to (Apple’s) iPhone and (Research In Motion’s BlackBerry) Storm – slim, light, stylish smartphones with selected high-end features,” wrote analyst Tero Kuittinen at Global Crown Capital, L.L.C., “and we believe they are arriving in 2009.”