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Nimble Asian rivals raid Nokia's emerging markets turf

Jun 7, 2011

From New
Delhi to Shanghai to Johannesburg , a flood
of cheap handsets from the likes of ZTE and
Micromax is destroying Nokia's top position
in emerging markets.
Compounding the woes for the Finnish
phone maker, Asian handset manufacturers
are increasingly turning to Google's free
Android software, which is popular with
operators and consumers in cut-rate
markets.
Nokia is already under pressure in the high-
margin smartphone sector as Apple,
Blackberry maker Research In Motion and
Google seize market share, leaving the basic
cellphone business as Nokia's most valuable
part. That is now under threat.
"Three years ago Nokia's position in
emerging markets looked impenetrable, but
low-cost chipsets and growing scale has
helped a number of Asian manufacturers to
price aggressively and seize market share,"
said CCS Insight analyst Geoff Blaber in
London.
"The 'lean mean phone-making machine'
that used to dominate the sub $50 space
has come under huge pressure from agile
rivals."
Last week, Nokia abandoned hope of
meeting key targets just weeks after setting
them, blaming difficult conditions in China
and Europe. Its shares slumped 18 percent
in one session on scepticism about its
strategy to team up with Microsoft for
Windows Phone software in the
smartphone war.
The battle for the cheap phone market
could be even tougher.
Nokia has been able to rely on its brand and
distribution chain across emerging markets,
home to 1.7 billion mobile phone
subscribers.
But ZTE and larger Chinese rival Huawei
Technologies, which have traditionally been
in the network equipment business, are
aggressively muscling in on mobile devices.
ZTE expects to ship more than 80 million
handsets this year, up by a third from last
year's 60 million units, a senior executive
told Reuters in April. Key markets for ZTE's
handsets include China and Europe.
Huawei has targeted shipments of 60
million handsets this year, even marketing
its devices in glitzy Beijing malls and a Milan
fashion show to raise its profile.
"They are already familiar with what the
operators are looking for," said Melissa
Chau, research manager for client devices at
IDC Asia Pacific in Singapore, referring to ZTE
and Huawei.
"At the very low-end, they offer handsets at
very low prices in huge bulk shipments to
operators."
Demand for low-end cellphones has surged
across emerging markets since the global
economic crisis began to ease in 2009.
However, Nokia's sales of basic cellphones
has fallen for three straight quarters. In
January-March, Nokia sold 84.3 million non-
smartphones, 2 percent less than a year
ago.
CRUMBLING MARKET SHARE
"Nokia should really have begun this fight
back two years ago and leaving it so late in
the day puts the vendor in a very tough
competitive position," said Neil Mawston,
analyst at research firm Strategy Analytics.
Some of the Asian vendors are hardly
household names. But in China, the biggest
competitive threat comes from
manufacturers that have no name at all.
So-called no-brand manufacturers -- small
Chinese firms using chipsets from Mediatek
or Spreadtrum Communications Inc --
control 45 percent of the market in the
world's most populous country. Nokia's
market share in China has shrunk to 19
percent from 33 percent two years ago.
No-brand Chinese manufacturers have also
expanded into Africa, India, Latin America
and Russia over the last year, research firm
Gartner says. In total, they sell more phones
than Nokia, said Gartner.
Analysts expect these manufacturers to
focus next on cheap smartphones running
Android software.
In India, Nokia is in a bruising fight.
The company is jostling with about 150
vendors in the world's fastest-growing
cellular market, home to more than 800
million subscribers and with mass market
phones selling for about $20 with basic
features.
Cheap handsets and phone charges as low
as half a cent a minute are fuelling growth.
Some Indian manufacturers, who mostly
make handsets in China and Taiwan, make
net margins of only about 2 percent,
analysts said.
No-brand Chinese vendors controlled 20
percent of the Indian market in the first
quarter, with Nokia at 26 percent, Gartner
said. Only two years ago, Nokia had close to
60 percent.
About 220 million new handsets are
expected to be sold in India this year, up
about 25 percent from last year.
By adapting to local tastes, handset makers
such as Micromax grabbed 7.6 percent of
handset sales in India last year, local
research firm CyberMedia Research says.
Funded by private equity, Micromax sells
handsets packed with features such as dual
SIM cards, which allow users to take
advantage of different call and data pricing
plans as well as separate business and
private usage; gravity sensors that allow
users to change mobile networks by
rotating handsets; and others that can be
used as a remote control for televisions, air
conditioners and DVD players.
"Micromax sells like 1 million devices a
month. Out of the 1 million, more than
80-85 percent were dual-SIM," said
Abhishek Chauhan, senior consultant,
information communications practice at
Frost & Sullivan.
Nokia started to sell its first dual-SIM phone
only last month in India.
"First-time phone users are looking for new
features at an affordable price," said Daljit
Singh, a mobile handset retailer in New
Delhi.
"Nokia hasn't really been able to improve on
features, while these new brands give you
everything -- dual-SIM, FM radio, multimedia,
memory, video."
ASIAN MAKERS ALSO TARGET SMARTPHONES
Surging demand for more advanced
features and falling prices boosted the
smartphone market to roughly double last
year. Smartphones now create 25 percent
of all phone market volumes, and the
majority of the profits.
Growing demand for phones running on
Android will help the smartphone market
further in 2011, boosting Asian companies
such as Taiwan's HTC and South Korea 's
Samsung Electronics, which are both betting
on the platform.
While Nokia still sells more smartphones
than anyone else with its soon-to-be-
ditched Symbian platform, it is rapidly losing
market share to Apple, RIM and Samsung.
"Samsung will achieve more than many had
expected from Nokia's retreat. Its diversified
lineups from the high-end Galaxy to mid-to-
low-end models will take market share from
Nokia's strongholds in Asia, Europe and the
North America," said Lee Seung-woo, an
analyst at Shinyoung Securities.
Meanwhile, HTC's market value overtook
Nokia's for the first time in April. The firm's
shares have jumped 37 percent so far this
year, taking its market value to $35 billion,
while Nokia's stands at $24.5 billion, a 41
percent plunge.
Nokia still has higher volumes, selling 19
phones for each HTC phone sold last year.
But its average sale price was $85
compared with HTC's $360, Strategy
Analytics says.
The HTC Desire series has been a hit, and
investors are betting recent models such as
Thunderbolt and Incredible S will build on
that success among consumers in the
United States and Europe.
In the Western European pre-pay market,
where no-brand manufacturers do not have
a presence, Samsung took the No. 1 slot in
the first quarter, overtaking long-term
market leader Nokia on its home turf.
Samsung's sales rose 5 percent year-on-
year in the region, with its market share
rising to 29 percent, while Nokia sales
dropped 10 percent, and its market share
slipped to 28 percent, market research
group IDC said.
Nokia's market share in smartphones sold
in Western Europe dropped to 20 percent
from 41 percent a year ago.
"For now, Nokia is destined to remain
trapped in a pincer movement between
low-end Asian vendors at the bottom and
high-end American players at the top," said
Mawston of Strategy Analytics.