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Nokia's Failure to Win U.S. Users Hurts Profit, Stock (Update1)
Nov. 2 (Bloomberg) -- Moulik Shah, a student from Orange County, California, changed his foldable Samsung Electronics Co. mobile phone to a bar-shaped Nokia Oyj handset when he started a four-month exchange at the Helsinki School of Economics in August. He will switch back to Samsung when he returns home.

``Samsung is more fashionable in the U.S.,'' said Shah, 27, in an interview. ``People prefer flip phones, and typically they're smaller. You hardly see any Nokias in California.''

Nokia's failure to woo U.S. consumers like Shah is hurting Chief Executive Jorma Ollila's effort to regain global market share, which fell to a five-year low this year. Espoo, Finland- based Nokia, the world's biggest maker of mobile phones, will have to allow U.S. operators a bigger say in the development of phones and bring out more handsets for the U.S., said Marko Alaraatikka, a fund manager at Evli Investment Management.

``Nokia needs to improve in the U.S. if it wants to get closer to 40 percent market share,'' Helsinki-based Alaraatikka, who oversees $3.6 billion and holds Nokia shares, said. ``It has done clearly worse there -- competition is fierce.'' The U.S. is Nokia's biggest market with 15 percent of sales in 2003.

Nokia last month said profit will fall for a second straight quarter as revenue drops and it spends more on marketing. Fourth- quarter earnings per share may fall to between 16 euro cents (20 U.S. cents) and 18 cents from 25 cents a year earlier, the company said. Nokia forecast sales of 8.4 billion euros to 8.6 billion euros, down from 8.79 billion euros a year earlier.

Shares Slide

The company's shares, unchanged at 12.23 euros as of 12:05 p.m. in Helsinki, had slid 11 percent this year before today. Motorola has risen 23 percent and Samsung has lost 2.5 percent. Of the 52 analysts covering Nokia, 21 rate the stock a ``buy,'' 20 a ``hold,'' and 11 a ``sell,'' according to Bloomberg data.

Ollila, 54, may tell investors at a New York meeting Nov. 4 and 5 how he plans to increase Nokia's business in the world's largest economy, as he seeks to reach the company's stated aim of a 40 percent global market share. Nokia has about 31 percent now. On Nov. 2 to 4, Ollila also hosts a company event for customers and investors in Monaco on the Mediterranean Sea.

Ollila, who declined to comment for this article, on Oct. 14 said Nokia will expand its U.S. phone range and convince U.S. operators to offer more Nokia models to subscribers.

U.S. Market Share

Nokia's U.S. market share fell to 21.4 percent in the second quarter from 28.4 percent in the third quarter of 2003, according to Framingham, Massachusetts-based market researcher IDC. Ollila last month said the company's U.S. market share kept sliding in the third quarter of this year.

In the same period, Samsung, based in Suwon, South Korea, increased its U.S. market share to 21.9 percent from 11.1 percent, IDC said. Motorola Inc. retained its No. 1 spot, while its market share shrank to 24.8 percent from 28.6 percent. LG Electronic Inc.'s share rose to 12.2 percent from 12 percent.

Ollila is trying to reverse the slide after failing to foresee the boom in flip-screen camera phones, which have bigger displays for photos and games. Shah said there were no Nokia flip models offered with the call plan he wanted in California.

Nokia offered its first clamshell phone in March, a decade after Schaumburg, Illinois-based Motorola, its closest rival.

The lack of Nokia flip phones persuaded Jennifer Stahler, a Chicago massage therapist, to buy a silver-colored Samsung clamshell model instead. She said most of her friends have chosen a phone with a similar design.

``I chose the phone because it folds and it looks cool,'' said Stahler, 32. ``I didn't like the Nokias because they seemed not as comfortable to use.''

Rebound in Europe, Asia

Nokia's market share is recovering elsewhere. Price cuts and new models such as the 6600 and 6230 have increased sales in Europe and Asia, helping Nokia's global share bounce back to 30.6 percent in the third quarter from 28.8 percent in the second quarter, Boston-based researcher Strategy Analytics said last week. Motorola had 13.9 percent and Samsung had 13.5 percent.

Nokia will now focus on products aimed at the U.S. market and improve its relations with operators including Verizon Communications Inc., based in New York, Nokia Chief Financial Officer Rick Simonson said in an interview last month.

In Europe, mobile-phone companies such as Paris-based Orange SA have said Nokia has improved its cooperation with operators, for example allowing them to participate more in the phone design process and placing operator logos on handsets.

The company aims to sell more handsets that use the so- called CDMA standard, or code-division multiple access, in the U.S., Ollila said on a conference call Oct. 14. CDMA handsets account for more than half of the U.S. market, whereas in Europe the rival GSM standard is dominant.

Coke, Hewlett-Packard

Nokia last year appointed for the first time U.S. citizens as executives, naming Simonson CFO and hiring Mary McDowell, previously a Hewlett-Packard Co. manager, to head the unit that makes mobile phones for businesses. Nokia this year also set up an office in Westchester County, New York, where Simonson and McDowell will be based.

The company in August hired Keith Pardy from Atlanta-based Coca-Cola Co. Pardy, 45, who worked for Coca-Cola for 17 years and was in charge of the Sprite and Fanta brands, joined Nokia as a senior vice president in charge of brand management and consumer relations. Nokia will also lift marketing spending this quarter, Ollila said on the Oct. 14 conference call.

``I'm cautiously positive Nokia can improve,'' said Ville Ahoranta at Etera Mutual Pension Insurance Co. in Helsinki, which manages $6.1 billion, including Nokia stock. ``Their products are gradually getting better.''

Back home in California, Shah would consider picking a Nokia model should he find a CDMA model he likes and if it's available with the subscription he wants.

``The phone brand is not that important in the U.S.,'' said Shah. ``It's the features and price that count.''



To contact the reporter on this story:
Ville Heiskanen in Helsinki [e-mail]

To contact the editors responsible for this story:
Lars Klemming at [e-mail] or
Zimri Smith at [e-mail]
Last Updated: November 2, 2004 05:14 EST


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