Opting out of price competition eats away at Nokia market share

Finnish company still ahead of competitors

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Mobile telephone manufacturer Nokia said on Friday that its market share for July and August will fall short of what it predicted in July.
     The announcement deepened the slide of Nokia’s share price, which fell 9.6 per cent on Friday, in a decline that began already before the market share reduction was announced in the afternoon.
     Nokia’s market value has fallen to below half of November’s record-setting EUR 109 billion.
     
The reason for the fall in the market share is the price competition in cheap handset models, and the fact that the launch of a planned mid-priced has been delayed. Apple’s iPhone did not affect the situation.
     In April through June Nokia calculated that 40 per cent of the mobile telephones sold around the world were made by Nokia. In the current quarter the market share will fall “slightly” below that figure, Nokia’s Chief Financial Officer Rick Simonson said.
     In July the company continued to predict that its market share would remain at about 40 per cent.
     Nokia did not say how much it expected the market share to decline, but Simonson’s choice of words suggests that the dip would be just a percentage point of two.
     
Nokia is usually able to manufacture telephones at a lower cost than its rivals. When the company’s selection of models proved disappointing in 2004, Nokia responded to the loss of market share with price competition.
     The decline stems from Nokia’s decision not to respond to their competitors’ aggressive pricing policies, preferring to look on as its rivals undercut each other.
     Simonson said that some of Nokia’s competitors have become overly aggressive in certain markets. He said that he suspects that the competitors probably will not be able to maintain the current price level for very long.
     
Nokia will not specify which companies it sees as reckless price cutters, or in which countries the price battle has eaten into its sales.
      The competition focuses specifically on cheap phones with which Nokia’s advantage over its competitors is greatest. Hannu Rauhala, an analyst at Pohjola Bank, says that “probably all of the large competitors”, have taken part in the price war in one way of another.
     Nokia’s biggest competitor is Samsung, which had a 15 per cent market share in April-June, according to the market research company Gartner. Samsung is followed by Motorola (10 per cent), LG (nine per cent) and Sony Ericsson (7 per cent).
     Nordea Bank technology analyst Martti Larjo told the Startel news agency that Motorola at least is promoting price competition. He also said that Sony Ericsson is under pressure to boost sales.
     
The most important market for Nokia’s cheap models is in Asia, especially in China and India. However, they also sell well in Western countries.
     Another factor pushing down the market share is that one model in the mid-price range was not introduced as expected.
      Digitoday magazine said that it believes that the hard-luck model is likely to be the music mobile phone 5320 XpressMusic.
     
Nokia did not say how it expects the loss of market share to influence the company’s result. Rauhala said that he expects the result to decline somewhat “but not in a dramatic way”.


Previously in HS International Edition:
  Nokia Q1/2008: Weak dollar eating into value of handset market (18.4.2008)

Links:
  Nokia press release September 5, 2008: Nokia lowers its third quarter 2008 mobile device market share outlook

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