Low-End Line Holds at Nokia

Nokia should have emulated Sony Ericsson and created crisply defined, separate product segments for both music phones and camera phones. The current N-series branding, which encompasses whole ranges of music and photo models, is confusing, and the design of entertainment models has drifted too close to the corporate models.

The shock of the new is now missing. Nokia needs some extra design kick soon: transparent models, asymmetrical models, flexible displays, motion control and/or miniature projectors. I still believe Apple's (AAPL Quote) new phone is too odd to work in the mass market, but Nokia has taken the opposite route -- all the way into the central plaza of Snore City. Billions have been invested in software development, so why are there so few interesting applications bundled into Nokia models?

There seems to be real trouble in the mid- to high-end phone market. Only Sony Ericsson dodged the problem in the fourth quarter; Motorola, Samsung, LG and Nokia have now all shown signs of high-end weakness. As I mentioned in an earlier column, it is puzzling that high-end problems are surfacing at this point of the phone market cycle. Annual handset volume growth still tops 20%; European operators are trying hard to switch consumers to fancy new W-CDMA models, and many affluent Asian economies should be transitioning from entry-level buying to upgrading.

The high-end weakness we are witnessing in fourth-quarter results is difficult to explain and will undoubtedly concern investors before we get more solid information about what's going on. That would happen decisively in April, when the first-quarter numbers come out and we get a sense of how the difficult transition from the hectic Christmas season to the slowest quarter of the year went.

That's why I believe Nokia is not about to embark on a wild breakout run. We're more likely witnessing a relief reaction to the fading challenge from Motorola.