Japanese warning for Nokia
10/5/2000
Watch out Nokia. Japanese manufacturers want to use the switch to third-generation (3G) mobile technology to steal your market. And this may not be just an idle wish. Vodafone, the world’s biggest network operator, is in talks with Matsushita and other Far Eastern manufacturers about using them as suppliers of 3G phones. The reason? It thinks Matsushita, with which it has to date done very little business, is ahead of Nokia in 3G technology.
Technology shifts have a habit of unseating industry champions. IBM’s dethronement as king of the computer industry when mainframes gave way to personal computers is the textbook example. The introduction of a new generation of mobile phones could be another example. Why? Because 3G handsets, earmarked for fast data-driven services, need enhanced graphics and audio capabilities. Matsushita and the other Japanese manufacturers have a lead in the race to make such devices. That comes from supplying NTT DoCoMo with phones for i-mode, its hugely successful data-rich service. Japan will also be the first country to launch 3G - the service is scheduled to launch next May – potentially reinforcing the lead of the home team.
Another worry for Nokia is that 3G will create a single global market. Until now, Japan has used one standard and Europe another. In Japan, Matsushita has been kingpin with 30% market share. But its share of the global market has been only 5%. Nokia, by contrast, has had minimal presence in Japan but 30% of the global market. Since the area where it is dominant is so much bigger, it has more to lose.
Vodafone, of course, is not abandoning Nokia. It will presumably continue to use the Finnish group along with other suppliers. And Vodafone has yet to sign a deal with Matsushita. Moreover, Nokia has formidable strengths: vast economies of scale, deep relationships and a brand to die for. Add to that the fact that 3G will be phased in more gradually than the previous big switch from analogue to digital – meaning early 3G handsets will have to be compatible with today’s technology – and it is clear Nokia is not just going to be swept aside. That said the shares are still trading on around 60 times this year’s expected earnings, even after July’s profit warning. With the Japanese on the warpath, it is doubtful they are fully reflecting the risks.
Author: Hugo Dixon and Mike Monnelly
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