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Motorola Chips Away at Nokia's Lead in Cell-Phone Market

Posted on: Wednesday, 9 June 2004, 06:00 CDT

Jun. 9--A seismic shift is under way in the billion-dollar cell phone marketplace with the re-emergence of American giant Motorola and the eclipse of Finland's long-time frontrunner Nokia.

The once brilliantly innovative Nokia lost substantial ground in its share of the market in the first three months this year as competitors muscled in with newer products.

Though global cell phone sales soared 34 percent in the first quarter with some 153 million handsets sold, Nokia's market share plunged 5.7 percent, according to a study yesterday by market research firm Gartner Group.

"Nokia's dramatic drop in market share resulted from a weak product portfolio and the decision by operators to source more phones from Nokia's competitors," said Gartner analyst Ben Wood.

Part of the problem Nokia has faced is that competitors' phones were using newer technology and had a better look -- especially the increasingly popular clam-shell or flip-phone.

"Nokia failed to anticipate over the lifetime of the product how quickly the display quality would improve (for competitors). It was a two-year-old product versus a brand-new product," said Paul Sagawa, analyst at Sanford C. Bernstein.

So Nokia is heading into the second half of the year with a newer version of its N-Gage game phone, which was "a flop," when first introduced last year, according to Richard Doherty, research director at Envisioneering.

The revamped N-Gage is 20 percent smaller and comes without the FM radio and MP3 player in the original model. Traditionally, Nokia is regarded as the company that introduces new uses and features in its products, ahead of the competition.

"They take chances and their sales tend to stall because they are the first ones to do something," said Doherty.

Many analysts view the cell phone industry as cyclical.

"The question is, are the new products going to leapfrog the competition just like competition leaped over Nokia," Sagawa said.

Companies like Motorola and the Korean brands Samsung and LG are gaining on Nokia in a race to woo consumers to use cell phones as entertainment and communication centers.

Retailers hope new and upgraded features like megapixel camera phones, multi-media messaging to send and receive videos, MP3 players, removable batteries, even TV receivers will push buyers to newer models.

And while the phone makers are focusing on music and communication applications now, analysts see unlimited potential for new uses.

"Korea has better communications and is the most wired, plugged-in nation on earth so the cell phone makers are always looking to add applications. If there's a way to put a microwave oven in a cell phone they'll do it," Doherty said.

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MOT, NOK, SEC, LGEAF,

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