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Business: Nokia left out in mobile phone boom: Lack of mid market handsets hits Finnish leader

Posted on: Wednesday, 7 April 2004, 06:00 CDT

Nokia, the world's largest maker of mobile phones, shocked investors yesterday by warning that sales had dropped over the first three months of the year despite a boom in the overall market.

Traders, who had expected the Finnish company to beat first quarter forecasts, sent shares in the company down more than 15%. The shock reverberated through the technology world, sending telecom stocks lower on both sides of the Atlantic.

The warning was especially surprising as the market for handsets has been experiencing a resurgence over the past six months with camera phones, including colour screens, flooding the mature markets of Europe, and new markets in Asia opening up.

Nokia's chief executive, Jorma Ollila, admitted that the company suffered from a lack of attractive handsets aimed at the middle of the market -around euros 150 to euros 250 per phone.

"We have not been able to grow with the market in the US and Europe, where our share has been very strong," he told investors.

Analysts believe the company has also been squeezed at the cheap end of the market by strong competition from Siemens, while sales of new high-end concept phones such as the N-Gage gaming platform have been disappointing.

The company said yesterday that first quarter turnover dropped 2% to euros 6.6bn compared with its previous guidance of growth in the region of 3% to 7%. As a result the company said profits, to be announced next week, would be at the bottom end of expectations.

"They are still the undisputed leader of the market, but they are coming under pressure," said Ben Wood, senior analyst at Gartner Dataquest.

He reckons that Nokia had a 35% share of the global handset market at the end of last year, with Motorola in second place on 14% and Samsung third with 10%.

Nokia has long held an ambition to retain a 40% share of the global market place, but Mr Ollila did not mention this yesterday. A spokeswoman for the company said more details about the outlook for the second quarter would be given with its results next week, but added "we did not change the forecast either".

Nokia is coming under increasing pressure from revitalised competitors in the form of Motorola and SonyEricsson, both of which had lost their way in the dotcom crash. It is also suffering as new entrants such as Samsung come into the market with lower margins.

The company has found itself excluded from some of the cheap phone deals Europe's networks have introduced to lure new customers. Mr Wood said he expects Nokia to come out with phones aimed at the gap in its portfolio soon.

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