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Why Nokia is winning the cell phone wars
Posted: 13-Apr-2000 [Source: ZDNet/Reuters]

[According to this report, Nokia is winning at the low end while Ericsson is positioned with strength in the high tech sector of the wireless handheld space.]

Stockholm -- "Nokia, the world's No. 1 mobile phone maker, has showed its tactical edge over rivals Ericsson and Motorola in predicting the current boom at the low-cost end of the market.

"And while Motorola (NYSE: MOT) is suffering from a top-heavy product mix and component shortages, the Finnish and Swedish players are both well positioned to benefit from a medium-term surge in the high-tech market, analysts said.

"Tuesday's cautious second-quarter profit outlook from Motorola, confirming market fears that the company's self re-invention had not been as complete as was hoped, was punished with a 17.5 percent fall in its stock price.

"Motorola's bleaker prospects can largely be put down to its failure to predict a shift in demand toward lower-margin, lower end phones as the pay-as-you-go market balloons, a phenomenon analysts said Finnish Nokia (NYSE: NOK) had read better from the start.

"I think Nokia has proved quite simply better at managing the situation. They have a stronger brand and a broader product range," said Gunnar Andersson, telecoms analyst at Sweden's Handelsbanken.

"Nokia's special strength has been its ability to make money on cheap, entry-level phones while embracing the shift now in progress toward higher-tech, higher-margin products, said Michael Schroder of brokers Opstock in Helsinki.

"The trend has been for big volumes in less profitable low-end phones -- but in the last quarter of last year Nokia still managed to maintain a margin of just under 25 percent."

"And the shift toward higher data transfer speeds over mobile networks would boost sales of high-spec phones offering Internet-like functionality to the user -- and juicier margins to the maker, Schroder said.

"Nokia, a master in managing the logistics of smart manufacturing and component sourcing, declined comment on its own position, referring to its first-quarter earnings report due on April 27.

Ericsson slow off the blocks

"In one sense, Sweden's Ericsson (Nasdaq: ERICY) has been shielded from the worst effects of the shift toward low-end phones by the fact that it was hardly shifting any units at that end of the market anyway, but this is cold comfort for the Swedish giant.

"You could say this has been one of Ericsson's problems for some time -- that they haven't got competitive products in the low and mid-segments, where volumes have been rising fastest," said Mika Paloranta of MeritaNordbanken in Helsinki.

"But Ericsson is by no means suffering as much as Motorola and its emphasis on high-tech will eventually work in its favor, he added.

"In the long term, as WAP and wireless Internet become more enabled, Ericsson's standing will be better. But it will take time, and this year it won't really happen."

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