Nokia's N97 enters crowded smartphone market

Nokia (NYSE:NOK) announced last week that its flagship mobile computer, the N97, will begin selling this month in more than 75 countries. Deployments are slowly being unveiled, with launches announced today in Russia on carrier MTS, in India and plans announced for a June 19 launch in the UK and July 1 on Vodafone in Spain. North America is on its list of launch markets, but with competition at an all-time high, some analysts believe Nokia would be better served sticking to its bread and butter: lower-end devices and emerging markets.

Nokia has always had trouble forging relationships with carriers in the US, where CDMA dominates and Nokia's services model gives them cause for hesitation, but especially now as the market is seeing more competition than ever before. The Palm Pre went on sale this weekend with analysts estimating at least 50,000 sold. Apple, too, is expected to make another iPhone hardware announcement within the hour at its developer's conference today. In addition, Research In Motion is expected to follow up its Verizon-exclusive Storm smartphone with a new device this year, along with the 18 Android devices promised from Google.

The N97 includes a qwerty keyboard and customizable, tilting touch screen and is the first to offer full access to Nokia's Ovi services portal for paid and free applications ranging from location-based services to music to gaming to social networking. It's a powerful device, but it might not matter, according to ABI Research director Kevin Burden. Given the competition in the US and the strong focus on high-end smartphones, Nokia should focus on low-end devices here, he said. The N97 isn't a handset that will attract a large number of users, and it would hurt Nokia if they tried to do so in the US.

"I think what they are more interested in doing in the US is getting in their mid-tier phones and getting market share as opposed to coming in with their flagship phone and building an image of a company that builds high-end, complicated phones," Burden said, adding that it'd be smartest for Nokia to start at the low end and then move upstream through viral marketing and building a brand presence.

Burden compared the N97 to a concept car – one that no one buys but that provides a blueprint for a lot of the elements that will eventually trickle down to production cars. While Nokia built the N97 – like the N95 and N96 before it – to sell, he sees its real purpose as being to test the water on certain features to see what resonates with consumers.

Lower-end handsets may be the best strategy in the US, but sticking to the emerging markets could be Nokia's best bet overall, according to Juniper Research analyst Andy Kitson. Smartphones accounted for 13% of all mobile device shipments last year and are expected to account for one-third of new mobile phone sales by 2015, but the flipside of this growth story is that the growth is only coming from more mature markets, he said. Handset makers – none more so than Nokia – would be remiss to ignore the opportunity in emerging markets, he said. 
"Nokia's value-added service business can be combined with its low-cost devices to help even those on subsistence-level incomes to buy and use mobile phones and services that, in turn, can help them run their lives more effectively," Kitson wrote today on Juniper's blog. "The Mail on Ovi solution, as well as a suite of educational, agricultural and other information-based services, is helping rural Indian farmers on low incomes to improve their education and offer tools suited to better organizing the way they can grow and sell their cash crops, for example."

Juniper predicts that over the next six years, 75% to 80% of new mobile users will come from emerging markets where consumers have little to no discretionary income. Nokia is supporting this movement with its low-cost handsets, such as the Nokia 1202, priced around $35. It is also pushing to bring the total cost of ownership of mobile handsets to below $5, but only four countries have achieved this goal, Kitson said. Considering Juniper's prediction that by 2012, nearly 716 million low-cost handsets will be sold, totaling 56% of all devices shipped, this is one area Nokia could dominate as it simultaneously continues its slow push into the US.

"Nokia doesn't need it to ship through carriers in the US for Nokia to make a successful comeback in this market," added John Jackson, research vice president for CCS Insight. "For Nokia it's a marathon, not a sprint."