Nokia Pushes High End In iPhone Era

With the cell phone market shifting from voice-focused handsets to multi-featured smart phones, Nokia has reorganized its business units to target multimedia and other data services.

Nokia announced the reorganization last week without mentioning the new player about to enter the smart phone field, Apple and its iPhone.

Leaders in the smart phone market include Research In Motion, with its BlackBerrys, and Palm, with its Treos. Apple, with its new product that includes what it touts as its best iPod music player ever, is expected by analysts to become a factor in the market.

Nokia's strength has been in the low end, but it's beefing up the high end. "We've put a lot of focus on developing smart phones with multimedia capability," Tero Ojanpera, Nokia chief technology officer, said in an interview. "We're aligning our organization to this strategy."

If Nokia executes as well in the smart phone market as it has in lower tiers, its rivals have worries.

The Finland-based company has long led the cell phone market. Its share of the worldwide market is 36%, says research firm Gartner. Motorola (NYSE:MOT - News) is No. 2 with 18.5%, followed by Samsung with 12.4%. Nokia recently affirmed its goal to reach near 40% share this year.

Smart phones are the sexiest submarket of the mobile phone field, but in 2006 they accounted for just 10% of unit sales. Besides voice, smart phones usually include e-mail, text messaging, calendering and Internet browsing. Some now include camera, music, video and location capabilities.

Nokia has stayed No. 1 by offering price-competitive products that helped pioneer some earlier technologies. It has also been quicker than most rivals to target emerging markets. It's No. 1 in Asia.

"In the late '90s Nokia recognized this global market opportunity, parlayed their expertise to these markets, and built phones quickly enough to meet demand on a global scale," said Neil Strother, an analyst at Jupiter Research. "Their timing has been really good. They don't seem to make a lot of mistakes."

Its presence is so strong, handsets in some regions are called "Nokias."

"In the U.S. (where Nokia is only No. 4), people might have a skewed view of Nokia's performance," said Gartner analyst Carolina Milanesi. "But in Latin America, Europe, Africa and Asia-Pacific they are doing very well."

In the China, India, the Middle East and Africa combined, Nokia said shipments rose 30% in the first quarter vs. the year-earlier quarter. Overall, Nokia's shipments rose 18% to 353 million.

Still, in the U.S. Nokia trails Motorola, Samsung and LG Electronics.

"Our U.S. market share is not where we would like," Ojanpera said. "We're putting more focus on working with the carriers and aligning our strategies better with them to improve our position."

The U.S. cell phone market differs from most of the world. In other countries people first buy a cell phone and then select a carrier and service plan. It's often the other way around in the U.S. Most people pick a service plan, and the carrier then recommends a phone, often offered at a lower, subsidized price.

In the company's last earnings conference call in April, CEO Kallasvuo said Nokia is working intently with Verizon Wireless and Sprint on new phones associated with new, unidentified technologies.

He also said "much deeper cooperation" was ongoing with AT&T/Cingular, adding that "we will start seeing the impact already this year from that."

Among big U.S. carriers, Nokia's ties are closest with T-Mobile.

"Nokia still needs to make more inroads with the bigger operators," Milanesi said.

Nokia's sales last year rose 28% to $52.3 billion. Sales rose 14% in the first quarter vs. the year-earlier quarter, the fifth straight quarter of double-digit growth. Profit also rose in double digits last quarter.

Since mid-January, Nokia's U.S. shares have risen 47%.

Nokia plans to start selling many new devices this year. One recent product rollout is the N95, a smart phone loaded with features but with a heady retail price of $700.

But the product is already a hit in Europe, where consumers are more accustomed to buying high-end phones. Most product reviews give the N95 a thumbs up.

And the iPhone is expected to give the high-end market a boost. Its two models are priced at $499 and $599.

"The iPhone will help raise consumer awareness around smart phones," said David Garrity, an analyst at Dinosaur Securities.

With AT&T's exclusive iPhone pact in the U.S., other carriers might well view the N95 as an alternative product, Garrity says.

"There's a high incentive to do that," he said.