– Producing Financial Results That’ll Underpin Its Internet Push– Finnish Giant Has 57% of the Profits of the Top Five Handset Makers, 40+% of the Market Share
Nokia is not to be underestimated in its bid to become the dominant provider of content and services on the mobile Internet because the size of its installed base of handsets is so large. Google, Yahoo, Apple, MSN and AOL may think that the battle will be fought among themselves but Nokia recognizes the size and importance of the mobile Internet market. It’s also making all the right moves in terms of acquisitions, partnerships and new launches. This is part of a longer article that appeared in Wireless Watch. To get the complete article, please e-mail paperboy@riderresearch.com.
At its annual capital markets day in Amsterdam last week, Nokia set out its key objectives for 2008, focusing on its mobile Internet strategies while also making bullish statements on margins, market share and intellectual property rights (IPR).
Sprint Nextel has demonstrated the high risk of embarking on an ambitious mobile Internet strategy without a solid current business to support it and reassure investors. At Nokia’s Capital Markets Day last week, it was showing how grand strategy shifts can work, when there is still growth in the core business; when the vendor is expanding from a position of strength; and when the new activities should, if well executed, also further stimulate the original revenue streams.
Nokia’ s executive team turned out to convince investors that, despite unforgiving market conditions and the doubts around the Nokia Siemens venture, it was in a strong position to capitalize on all the opportunities that do exist, and still generate sufficient margin to justify new adventures.
The erosion of its average sales price for handsets has been less dramatic than for many rivals and the share of the profits of the top five phone makers that it takes home is a huge 57%.
Nokia’s CEO and CFO were not only keen to stress that such performance mitigates the risk of moving into Internet services, but were also throwing down the gauntlet quite clearly to two major adversaries, Motorola and Qualcomm. Indirectly alluding to the former’s margins collapse following its over-enthusiastic pursuit of the ultra-low cost market, Nokia played up its increase in margin and said pointedly that low end did not mean low profit, “in Nokia’s case.” Turning tacitly to Qualcomm, the company boasted of its increasing stock of IPR in 3G and beyond, claiming it owns 30% of essential patents in W-CDMA.
Mobile Internet represents a huge challenge, even with this financial cushion, and Nokia is accelerating its sign-ups of partners and acquisitions, launching a music offering that provides a year of free downloads together with Universal Music, and adding file sharing start-up Avvenu to its empire, focusing on transfer of content between PCs and mobile devices.
The company rubbed salt in the wounds of two major antagonists – Qualcomm, with a heavy stress on Nokia’s growing patent portfolio; and Motorola, with many barbed comments on the US phone maker’s disastrous over-commitment to low margin markets.
On IPR, Nokia said it has 30% of essential W-CDMA patents, compared to Qualcomm’s 11%. That’s the heart of the Finnish giant’s argument of why the two companies’ cross-licensing deal, which expired in April, should be renegotiated in its favor.