Nokia Sees Phone-Selling Prices Stabilizing - CFO
Tuesday December 3, 5:01 pm ET
DALLAS -(Dow Jones)- The average selling price of Nokia Corp.'s mobile phones should remain stable in coming years, chief financial officer Olli-Pekka Kallasvuo said Tuesday.
The Finnish company's phone prices are closely watched as analysts try to gauge whether the company will be able to maintain its profitability as the phone market matures. Nokia's phone prices have fallen slightly over the past couple of years, as subscriber growth has slowed and industry sales of mobile phones have hit a plateau.
Kallasvuo said prices will get a boost from growth in sales of phones that have new features and support services such as picture messaging. Prices will be held down by sales of entry-level phones into developing markets such as India and Russia, he added.
Speaking at Nokia's year-end strategy update, the chief financial officer cautioned that phone prices are often overemphasized as a gauge of profitability, saying the difference in margins between phones in the low-, mid- , and high-end segments is not as great as many analysts presume.
Chief executive Jorma Ollila said he expects consolidation of mobile phone suppliers to continue as competitive pressures force smaller players to exit the market.
He said any supplier with less than 15% of the market should be considered " sub-scale." Only Nokia, which had an estimated 36% of the market in the third quarter, and Motorola Corp. are above that level now.
"We see it being increasingly difficult for marginal suppliers to survive in the long run," Ollila said. "It is very difficult to have a sustainable global presence if you are below 15%."
Among the suppliers who are struggling below that level are Siemens AG and Sony Ericsson Mobile Communications, the joint venture of Sony Corp. and Telefon AB LM Ericsson , Samsung Electronics Co. is below that level, too, but has grown rapidly in the last year to become the world's third-largest supplier.
Ollila said Nokia expects to improve its position in the Chinese phone market, where it is the second-largest supplier to Motorola and where analysts say it's been losing market share to local manufacturers in recent quarters.
"We have not been a leader in China in the last couple of years," he said. "We should be and we will be. We are very, very determined to be No. 1 in China."
He said the local players may gain more market share in China in the near term. But he said Nokia is in the midst of developing its own distribution system there, which should help bolster its competitiveness.
"We have a very long-term strategy in China," he said. "If there is a quarterly swing in market share in one direction or another, that is of no concern."
Ollila said Nokia expects phone component prices to decline by around 6%-10% in 2003, in line with historical trends. Costs fell slightly more than that this year, he said.
The chief executive said he expects 2003 to be a "good start" for new services such as picture messaging. How the market develops will depend on how rapidly operators to arrange roaming agreements so subscribers can use the services outside their own networks and how soon people will embrace the unfamiliar services, which he said is always hard to predict.
He said suppliers need to provide interesting new phones and operators need to promote the new services. Operators, he said, are "jumping on board - they are now understanding that this will be good" for their sales. But, he said, they could be doing more.
Earlier Tuesday, Nokia said it expects industry shipments of phones to grow 10% or slightly more in 2003, while sales of network equipment will be down around 10%. Ollila said phone sales should grow year-over-year in each quarter in 2003. |
