Nokia Targets Gaming Market - TheStreet

Nokia Targets Gaming Market

The handset maker looks to snatch some market share from Nintendo with its latest gadget, the N-Gage.
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got game. But will it turn into profit?

The world's largest handset maker unveiled details Wednesday on its new gaming gadget, the N-Gage, which the company hopes will help it grab a chunk of the lucrative handheld-gaming market. But the device isn't likely to make much difference to the company's top or bottom line this year, some say.

"It's too small a niche

for Nokia," said Brian Modoff, a wireless-equipment analyst with Deutsche Bank Securities. Rather, the company is "preparing for the future," said Matt Hoffman, a wireless-equipment analyst with Soundview Technology.

The N-Gage, which will launch in time for the Christmas shopping season, is Nokia's bid to snatch some market share away from Japanese game hardware and software manufacturer


, after attempts from competitors failed to generate any significant sales. Analysts estimate the handheld-gaming industry brings in as much as $4 billion in annual sales, according to calculations from Nordic Partners.

"The attractive thing about

the N-Gage is being able to engage with other users," said Modoff. Nokia's device enables users to download games from wireless carriers as well as compete against other players over a wireless Bluetooth connection. Nintendo's GameBoy device, meanwhile, operates using removable cartridges. Also, analysts say, Nokia's global distribution channels will give it a leg up on the Japanese game company.

Such channels helped Nokia sell approximately 152 million phones last year. But during the fourth and first quarters, consumers moved toward purchasing lower-cost phones, which drove the average selling price of Nokia phones down. Analysts say the gaming unit may help Nokia yank up the average selling prices of phones in the future. The new phone's price has yet to be determined. Analysts have estimated the device will cost $300 to $500.

N-Gage users also will be able to purchase games with graphics on a postage-stamp-size multimedia card. Game developers


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plan to create games for the unit, according to statements from Nokia and the companies. About 14 games are currently under development, with more to follow, said a Nokia spokesman.

Separately, Nokia is launching a game-publishing unit in order to develop and distribute games. It is hoping to charge a fee for every game published on the platform, an arrangement similar to


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, Nintendo and


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game-business models. No details were available.

Nokia also announced an agreement with

Deutsche Telekom

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-owned T-Mobile to develop a wireless service for downloadable games for the N-Gage.

"Large companies like Nokia spend a lot of

research-and-development money to develop these platforms," said Stewart Stecker, an analyst at Lehman Brothers. "It's not only in their best interest, but service providers are also trying to drive an increase in

average revenue per user."

To be sure, the Finnish giant has veered from traditional phone designs in the past with limited success. Nokia launched a digital music player and recorder phone that featured a full-text thumb board, the 5510, in late 2001 to target Europe's mobile teens. But sales of unit were disappointing, according to analysts.

Nokia American Depositary Receipts closed down 13 cents at $14.07.