Nokia confirms handset slowdown

(Telephony) Nokia officials warned the handset market will slow during the first half of 2001, confirming fears that the handset market is slowing.

"Growth is settling at less exceptional levels than during the past few years, but it is still in a class of its own in an industry of this size," said Jorma Ollila, chief executive with Nokia during a company conference call. "The main factors that affect the market growth outlook includes the slowdown of the U.S. economy and the cautiousness of some of the European operators in terms of their aggressiveness in the market place."

The world's largest handset maker reported slightly better-than-expected fourth-quarter results, with pre-tax profits of $1.6 billion. The company indicated it will sacrifice its margins to pursue market share in 2001 at the expense of its struggling rivals. Nokia predicts its market share is at least 32%, more than twice that of Motorola and three times that of Ericsson.

"Our strategy is to continue to focus on aggressively taking additional market share," said Ollila. "We see further market share gains as key to expanding our customer base and thus growing our future business potential … While we are not totally immune to the challenges at hand, our strong leadership position and strong financials will enable us not only to prevail but also capitalize on opportunities as they arise."

UBS Warburg doesn't predict a rebound in the handset market until the second half of the year either. A turnaround will hinge on the U.S. market rebounding from reduced consumer confidence, volume launches of general packet radio service handsets, a revived replacement market for handsets with added features and functionality and volume deployments of the first phase of third-generation infrastructure, said the firm.

Today, consumers aren't finding compelling reasons to replace their handsets. Wireless Application Protocol-based services so far have been a disappointment to users in Europe, and the introduction of GPRS handsets capable of higher-speed packet data connections are a year late. Nokia said it will begin shipping GPRS in the third quarter, with mass productions happening in the fourth quarter. Third-generation handsets will come a year later, said Nokia.

Nokia now predicts global handset sales to reach between 500 million and 550 million.

"We have a much bigger uncertainty," said Ollila. "We just don't know exactly what will happen."