Phone
“Its cheaper to use a domestic mobile,” said Zhao, a 24- year-old manager at insurer Haier New York Life who works in Shanghai and paid 500 yuan ($73.25) for a handset from Lenovo Group Ltd. “Theres nothing wrong with it compared with overseas brand names like Nokia.”
As Nokia seeks a comeback after posting last week its first loss in more than 10 years, consumers like Wei may pose the greatest threat. Lenovo, ZTE Corp., Huawei Technologies Co. and hundreds of Chinese “shanzhai” or “bandit” phonemakers are eating into Nokias sales in developing countries, one of the fastest-growing pieces of the devices market that is set to reach $200 billion by 2013.
The worlds biggest mobile-phone maker is getting boxed in. It faces competition from Apple Inc.s iPhones in consumer smart-phones and from Research in Motion Inc.s BlackBerry in the corporate arena. Now, its main business of mid- and low-end handsets, which accounts for 55 percent of devices revenue, is being eroded by emerging market rivals that are faster to react to fads with models including a Barack Obama commemorative handset with a “Yes We Can” logo and a golden Buddha phone.
“Nokias faced competition in the past, but I dont think theyve ever faced competition at the high end, middle and low end all at the same time like this,” said Kulbinder Garcha, a London-based analyst for Credit Suisse with an “underperform” rating on Nokia.
True Share
Nokia has fallen 18 percent this year in Helsinki trading to 9.09 euros on Oct. 16, giving the company a market value of about 34 billion euros ($50.7 billion).
“We are the number one device brand in the Chinese market, and have a strong strategy across all market segments moving forward,” said Thomas Jonsson, a Nokia spokesman.
In the third quarter, when Nokia posted its first loss since it began quarterly reporting in 1996, the companys smart- phone market share slid to 35 percent from 41 percent in the second quarter. Its overall market share held at 38 percent and will remain the same in the fourth quarter, Nokia said.
Some analysts have questioned the market-share figures, saying they dont entirely capture Chinese shipments because figures from some of the smaller companies are hard to track.
“The aggregate size of the Chinese phone shipments cant be ignored,” Garcha said. “Theres need to reassess how big the handset market is, and what Nokias true share is.”
MediaTek Chips
MediaTek shipments more than doubled in two years, exceeding 300 million this year, according to Credit Suisse research. MediaTeks growth means that 16 percent more handsets will be shipped worldwide this year than the 1.15 billion units estimated earlier, Garcha said.
“Nokia reports their market share as 36 to 38 percent but if MediaTeks volumes are to be believed, its really down to 32 percent,” Garcha said. “That can be a very significant issue in the margin,” as lower market share equates to lower scale advantage against peers.
Nokia Chief Financial Officer Rick Simonson, named the head of the mid- and low-end mobile-phones unit on Oct. 16, dismisses the threat from the Chinese vendors.
Margin Battle
“MediaTek makes a lot of chips that never end up in actual devices,” he said on a conference call on Oct. 15. “In our market estimates, we take into account everything that we can quantifiably and reliably estimate from the market. We think we capture it very well.”
Garcha said Nokia wont be able to raise operating margins on its devices back to 15 percent or more from 11 percent to 12 percent now. Nokia had margins as high as 21.7 percent in its devices division in 2007. Its average selling price stood at 62 euros in the third quarter from 110 euros in early 2005.
Moodys Investors Service, which on Oct. 16 cut its credit rating on Nokias debt, said it expects the companys “average selling price to slide and the operating margin to stagnate.”