Nokia: High Profits in Low-End Phones 2

"We have been able with our volumes and marketing money to make it very difficult for competitors to match what we can offer," says Simonson. "And in the markets where we are also selling other products with heavy advertising behind the Nokia brand, there is a big overflow of marketing money in the sub-€30 segment."
Low-End Bonanza

Take India, one of the most promising and lucrative new markets for handset makers. The Finnish phonemaker's brand is now "what Kleenex is to tissue," says Piper Jaffray's Walker. Over 50% of all of the handsets sold by Nokia in the country are under €50, or $70.91. Sales of phones for less than €30 are growing fast and are expected to represent as much as 20% of the total device market in 2007.

While rivals are leery of following Nokia into the low end, the company has plenty of competition elsewhere. During an Oct. 18 conference call with investors, Chief Executive Olli-Pekka Kallasvuo singled out Apple (AAPL) and Research In Motion (RIMM) as competitors he's keeping an eye on.

Nokia holds 50% of the world market for smartphones, the pricey devices that let people handle e-mail, Web surfing, and more. But competition is expected to intensify as RIM continues to introduce devices and Apple's iPhone goes on sale in Britain, France, and Germany. "We are investing more money so that we can not only match that competition, but beat that competition," says Kallasvuo.
Allaying Some Worries

The U.S. is one of the company's few weak spots. Its market share is well behind what it holds overall in the world, in part because of technology issues and also because powerful wireless operators such as AT&T (T) and Verizon Communications (VZ) have chosen to use more malleable handset suppliers. Kallasvuo acknowledges the challenges, but says Nokia is determined to improve its overall position in the North American market. "We are not home and dry," he says. Next year "will be a critical year."

Kallasvuo also tried to allay a few fears about the company's future. In particular, he addressed concerns that Nokia's push into services could damage its relationship with wireless operators, by putting the company into competition with its own customers. On Oct. 1 the company made its biggest acquisition ever, agreeing to spend $8.1 billion on Navteq (NVT) (BusinessWeek.com, 10/1/07), a Chicago company that provides the digital mapping information underlying navigation devices and Internet services. Nokia already offers its own music service, similar to what companies such as Verizon offer.

In the third-quarter conference call, Kallasvuo pointed to an Oct. 9 deal with Spain's Telefónica as an example of the opportunities ahead. The two said they will work together to accelerate the adoption of new Internet services on mobile devices by giving Telefónica customers easy access to Net services developed by both companies. "We have ongoing discussions with many other operators across the world, and you will hear much more about that going forward," says Kallasvuo. "We can bring a lot to the table when it comes to services."

Who says Nokia can't find opportunities to cooperate where others see only competition? Its success in low-end phones shows the Finnish phone giant is able to pull off what few others can.

Schenker is a BusinessWeek correspondent in Paris.