Nokia counts on smartphone, services combo for recovery

Nokia’s Nseries line of smartphones made its domestic debut in the US last August but have yet to gain a significant customer base or carrier relationships. The manufacturer is up against market leaders Microsoft, Research in Motion, Palm and Apple and an increasingly cost-sensitive customer base. Nokia’s 2009 handset strategy includes expanding in developed markets and improving its presence in markets including China, where its sales dropped 36% compared with last year.

“We are expanding smartphones to categories and form factors that have not yet been colored,” Kallasvuo said. “In that way, since the smartphone market seems to have traction indeed, we are changing our investments here to be aligned with that fact.”

Specifically, Kallasvuo is pinning much of his hopes on the touch screen Nokia 5800 Xpress Music, globally launched in October with a second version planned to come equipped with its mobile music storefront Comes With Music.

“Comes with Music has gotten a good start in the UK, but it’s quite clear, having said that, that we need to expand the hardware portfolio that is available for Comes with Music,” Kallasvuo said. “That is what we are doing here. The 5800 Comes with Music will be extremely important here. The plan is now in the near future to do 30 more markets and seven or more devices where Comes with Music will be available. In that way, we can meet different price points, different consumer segments. I remain confident the consumers will really understand the beauty of the offering. We are making music here legal.”

Gartner research director Carolina Milanesi supported Nokia’s focus on smartphones plus services in a research note today. She said Nokia’s lower-than-expected volumes were a reflection of both the economy and its relative weakness in its high-end portfolio for markets such as Western Europe. Nevertheless, she echoed Kallasvuo’s assertion that Nokia is best placed to deal with the current market condition thanks to its economies of scale, distribution channel and portfolio that meets different price points.

“Moreover, the services offering it is building with Ovi makes it stand out from its competitors,” Milanesi said. “It will be able to offer value added to its hardware in a way that some of its competitors will not. Its key focus for the year should be to improve usability of its devices so that consumers can truly take advantage of such services.”