Tele-commodity
Nokia's recent creation of Vertu, a division producing very high-end cell phones, received a blizzard of press but perhaps not for the right reason. Handcrafted, luxury handsets that cost several thousands of dollars apiece raise eyebrows, of course, but what does it say about the rest of the handset market?
Nokia, owner of one of the most powerful global brand names, has gone to great lengths to keep the two names apart. Why is that? Some say it's a typically shrewd move by a company that's putting its foot gingerly forward into unknown waters and doesn't wish to risk hurting its image, just in case Vertu flops.
That's probably part of it, even though Vertu might turn out to be a success. You don't need a Ferrari to go to market, but lots of them get sold anyway.
But being the worrying sort, and at the risk of sounding like we are Nokia-bashing, we wonder if Vertu's birth is a backdoor admission that the cell phone has finally become a commodity product, like TVs and stereos? If so, the implication is that Nokia's vaunted 20%-plus handset operating margins will head downwards again.
Nokia disagrees. A spokesman says Vertu is a sign that big opportunities remain in the traditional handset market, and that it expects average handset prices to rise beginning in 2003 due to the introduction of new technologies like 3G.
Much was made of the 2001 fourth-quarter jump to a 22% margin from 19% in the third quarter and 21% in the same quarter of 2000. But that rise looks more like a one-time blip up in a downward spiral: In early 2000, margins were 25%. Over the long term, margins will likely continue lower, because once a product becomes a commodity, it's a market- share game won by the lowest cost producer.
Barron's |
