Nokia Shrugs Off Rivals' Inroads

Nokia's (NOK) lead in the cell-phone market could narrow slightly as competition heats up and the big Finn comes up short on cool new models, say some observers.

The latest to take the circumspect approach is Lehman Brothers analyst Tim Luke, who Thursday cut his projections for Nokia's global handset market share to 38.3% for the next two quarters. That's down from 39%.

Though the industry is enjoying record worldwide demand for phones, Luke says Nokia's winning strengths in design and marketing are now being matched by slick offerings from outfits such as Samsung, LG, Siemens (SI) and No. 2 cell-phone seller Motorola (MOT).

In particular, the new crop of midpriced color screen phones from rivals is aimed directly at the upgrade cycles in Nokia's strongest markets, which include Europe and the U.S. There, longtime users are looking to trade in older models for new phones with more features, says Luke in a research note. Lehman has a neutral rating on Nokia.

The Helsinki phone giant unveiled five new phones at two recent trade shows, where gearmakers typically showcase the newest wares. Speaking to shareholders at the company's annual meeting Thursday, Nokia chief Jorma Ollila promised a total of 40 new models this year, matching 2003's level.

But analysts worry that the new handsets won't be available early enough to counter the impact of competitors' offerings.

Take the fast-growing code division multiple access, or CDMA, market here in North America. On the one hand, Nokia dazzled trade show goers with a long-awaited clamshell camera phone. But the excitement was muted, because the phone won't be available until the fourth quarter, say analysts.

Delays in actually rolling out a new cell-phone model can prove costly in the increasingly competitive handset market, as Motorola fans learned all too well last year. The company was late to market with some key camera-phone models and ended up ceding many of those sales to rivals, hampering Motorola's profitability and eventually helping to force the departure of former CEO Chris Galvin.

Nokia is hardly in the same kind of predicament Motorola found itself in last year. But history shows that timing the right product to an upgrade cycle can have dramatic effects. Motorola's foot-dragging in the '90s on the switch to digital from analog helped Nokia edge it out for the top phonemaker spot.

Also on Thursday, Nokia shareholders approved a stock repurchase plan that was introduced in January. The authorization renews a previous program and allows the company to buy back 146 million shares.

Early Surge Nokia in 2004

Nokia shares rose 48 cents, or 2.5%, to $20.02. The stock is up some 20% on the year but has been mostly flat since an early January rally that was fueled by hopes of an industrywide spending surge.

>To order reprints of this article, click here: Reprints