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Nokia Finds a Market on the Low End

Nokia Finds a Market on the Low End
February 22, 2013 11:27AM

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"There is sizable population across the globe which can't even afford a $50 phone," said analyst Neil Shah, "and there lies the opportunity in near term for vendors such as Nokia to strengthen its position by promoting ultra-low-cost feature phones as other vendors shift their focus completely towards smartphones." Feature phones are 90 percent of Nokia's shipments.

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Struggling Finnish handset maker Nokia appears ready to increase its output of low-end devices in addition to marketing its top-of-the-line Lumia devices that run Microsoft's Windows Phone 8.

Low-cost phones are an increasingly important force in the market as wireless networks reach emerging markets around the world.

Heavy Sales, Low Profit

"Cheap phones [such as] feature phones is almost close to a billion-unit market globally," said senior wireless analyst Neil Shah of Strategy Analytics. "Nokia commands almost a third of this market and is undisputed king in this segment. However, actual revenues and profits generated from feature phones is fairly small compared to the total industry revenues."

Nokia will unveil a new line of low-cost phones, to compete with China's Huawei and ZTE, at next week's Mobile World Congress in Barcelona, news agency Reuters quoted company sources as saying. The report noted that Nokia has spent the past two years playing catch-up with market leaders Samsung and Apple for state-of-the art smartphones. A lower-price version of its Lumia devices, now selling for more than $200, is also in the works, the sources said. (Apple has denied reports that it may be working on a cheap iPhone.)

Nokia saw its 14-year reign as the world's top phone maker fall to Samsung last year. According to IDC Research, Nokia did not make the Top 5 smartphone vendors of the fourth quarter, falling behind (in order of market share) Samsung, Apple, Huawei, Sony and ZTE.

Low-cost phones are particularly important in countries where carriers do not subsidize the cost of devices sold with two-year contracts.

Feature phones now amount to nearly 90 percent of its Nokia's shipments at present, helping Nokia generate enough revenue to turn around its struggling smartphone business, Shah said. Low-cost smartphones have been cutting into feature phone sales in the $50 to $150 range.

"There is sizable population across the globe which can't even afford a $50 phone, and there lies the opportunity in near-term for vendors such as Nokia to strengthen its position by promoting ultra-low-cost feature phones as other vendors shift their focus completely towards smartphones," he said.

More Brand Share

The proliferation of cheap phones in the market may help smaller companies and allow more people access to the mobile Internet but is no cause for immediate worry for those at the top, he added.

"It won't have a direct monetary impact on the likes of Samsung and Apple's revenue or profit share in near-term," Shah insisted.

"However, the increase in volume share does strengthen Nokia's brand share and mind share for consumers buying these cheap phones. As a result, feature phone manufactures like Nokia have some glimmer of hope to upgrade their current installed base of feature phone users with future Nokia smartphones leveraging the built brand share, mind share and trust share. This is how Nokia built its business in emerging markets."

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