Nokia sees revival with handsets at 97% discount to iPhone
Priced 97% below the latest iPhone, the Nokia 105 features pre-loaded games, a colour screen, a radio and a flashlight
Nokia CEO Stephen Elop pointed to the 105 as a signal that the low-end business can recover after a difficult quarter. Photo: Reuters
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Stockholm: As Nokia Oyj struggles to catch Apple Inc. and Samsung Electronics Co.
in the market for smartphones costing $500 or more, it’s counting on a
bare-bones handset that sells for just $20 to give it an edge.
Priced 97% below the latest iPhone, the Nokia
105 features pre-loaded games, a colour screen, a radio, a speaking
clock and a flashlight. The phone, Nokia’s cheapest ever, has been
available for a few weeks in India and Indonesia and will soon start
selling in Europe.
Even with its bargain-basement price, the 105 is critical
to Nokia’s entire handset business. Nokia reported on 18 April that it
sold about 11 million fewer mobile phones in the first quarter than
analysts had projected, with sales of basic phones plunging 21% to 55.8
million units. A failure to revive the low-end business would leave
Nokia without an important source of cash as it seeks to develop devices
to challenge the iPhone and Samsung handsets running Google Inc.’s Android.
“Falling sales of simpler phones are definitely
worrisome, said Mika Heikkinen, a fund manager at FIM Asset Management
in Helsinki,” who helps oversee some $2.5 billion, including Nokia
shares. They have to get this under control.
Nokia chief executive officer Stephen Elop,
speaking to investors after the report, pointed to the 105 as a signal
that the low-end business can recover after a difficult quarter.
Recovery signal
While demand for the iPhone and Android devices have made
smartphones the fastest-growing part of the market, basic handsets
still make up more than half of units sold. That means hundreds of
millions of phones each quarter—a market Nokia dominated until Asian
manufacturers such as ZTE Corp., Huawei Technologies Co. Ltd
and Samsung started challenging it more aggressively. Nokia says the
105 will be profitable, but declined to provide any details. Liberum
estimates Nokia will enjoy a margin of about 20% on the device.
Of the 336 million handsets Nokia sold last year, only
about 10% were smartphones. Basic models accounted for 31% of Nokia’s
revenue, versus 18% for smartphones Network equipment made up most of
the balance.
Nokia had more than half of the mobile handset market
before Apple introduced the iPhone in 2007. Nokia shares have fallen
more than 80% since then, while Samsung has risen 154% and Apple has
quadrupled. After five consecutive annual losses, Nokia is down 14% this
year through 26 April.
The stock rose 0.4% to €2.51 at 10.09am in Helsinki, valuing the company at €9.4 billion.
Developing markets
Nokia, based in the Helsinki suburb of Espoo, is counting
on cheaper phones like the 105 to build trust in the company’s brand in
growth markets such as India and China. Customers who buy a 105 will
stick with Nokia when moving to more expensive devices in the years
ahead, the company reasons.
“The low-end, high-volume part of the mobile-phone market
is a huge opportunity for Nokia in developing countries,” said
Francisco Jeronimo, an analyst at IDC in London. “These users will be
likely to upgrade to more expensive phones over time, so it’s a good
strategy to keep a high market share in this segment.”
“The 105 is very competitive and should help Nokia with
its low-end recovery effort,” said Neil Mawston, an analyst at
researcher Strategy Analytics in London. A predecessor to the 105,
called the 1280, sold more than 100 million units over three years.
“Simpler phones have been the bedrock of Nokia’s business for the past decade,” Mawston said.
35 days
Nokia’s expertise in handset production makes it possible
to turn a profit on a $20 phone, Jeronimo said. For years the world’s
largest mobile-phone maker and now No. 2, Nokia makes more than 600,000
phones a day in seven factories around the world, using parts from
suppliers it knows well. Chinese rivals may be able to make a device as
cheap as the 105, but they lack the features and services from Nokia,
Jeronimo said.
The candybar-shaped 105 is 25% cheaper than the Nokia
1280, yet its battery lasts 56% longer—35 days. The phone is resistant
to water and dust and comes with text- message-based tools that teach
English and provide basic health care advice.
“Despite such features, the company sought to simplify
the phone’s software, which in turn allowed it to use cheaper parts,”
said Dirk Didascalou, head of R&D for Nokia’s mobile-phone business.
Lumia attention
“To be successful at the low end, one needs to explicitly
do innovative work with a focus on delivering value,” he said by phone
from Nokia’s research facility in Beijing. “If you don’t, you get in a
cost spiral where you’re always a bit too expensive compared to somebody
else.”
Even as the slump in simple handsets has stolen investor
attention, Nokia’s main goal is to make a full recovery in smartphones,
where profit margins are widest. Apple’s 32-gigabyte iPhone 5 sells for
$750, while Samsung’s Galaxy S4 goes for $640 and Nokia’s flagship Lumia
920 is $450.
Nokia sold 5.6 million Lumia phones, which run on Microsoft Corp.’s Windows,
in the first quarter, up from 4.4 million in the previous three months.
But the iPhone and Android control more than 90% of the smartphone
market, while Nokia has just 3%, according to Strategy Analytics. So
it’s far from clear Nokia can break that dominance even if its low-end
devices recover, said Mikko Ervasti, an analyst at Evli Bank in
Helsinki.
Nokia may still be the second-biggest phone maker in the
world, Ervasti said. But if it’s going to have a chance at long-term
success it needs to make sure it also has the right smartphones. BLOOMBERG
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