Nokia's Game for a New Challenge

Nokia (NOK) is beefing up its game plans.

The Finnish handset king has added a couple big-name suppliers to bolster its push into the entertainment business. The company is preparing to make a big splash in Nintendo nation with its new game phone gadget, due out this fall.

In the past two weeks, the world's leading cell-phone maker has rung up deals with top videogame developers Sega and Electronic Arts (ERTS) to provide services and games for its upcoming N-Gage phone. The company has not disclosed the terms of the deals, and observers expect more announcements as Nokia seeks to broaden its game selection.

The N-Gage phone, which by no coincidence resembles fancy version of the beloved Nintendo GameBoy, is expected to get a major advertising push going into the holiday gift-buying season. The company is expected to unveil the phone Oct. 7.

To Nokia fans, the gaming strategy is a brilliant attack on an obvious opportunity. Adding new features such as cameras and MP3 players to phones has certainly goosed a sluggish handset upgrade cycle. And Nokia investors certainly hope it will also help prop up average phone prices. For Nokia, that means sustained 24% profit margins.

Cell Block Nokia's knack

But to skeptics, a venture in gaming is merely further evidence that the big Finn is desperately groping niche markets on the odd chance it can find new sales now that growth has ended.

There's a lot of truth to both positions, say analysts.

For one, Nokia's aim is to make phones of interest to everyone. And since nearly all trends point to so-called converged devices -- gadgets that combine features like music, video, computing, gaming -- it's hardly surprising that the company would use its ample resources to explore every corner of the market.

Of course, this has also been a year of disappointment for the mighty Nokia, which is facing its second consecutive year of revenue declines.