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Technology Stocks : Nokia Corp. (NOK) -- Ignore unavailable to you. Want to Upgrade?

To: Eric L who wrote (2220)	4/21/2002 12:04:28 PM
From: Eric L	Read Replies (1) \| Respond to of 9255

re: Quality Issues >> Nokia's Faulty Phones, A Worry For Industry Reuters April 19, 2002 Revelations that Nokia has sold millions of mobile phones with flawed screens have raised fears about the reliability of more complex handsets coming onto the market this year with colour screens and picture messaging. The problems for the world's largest handset maker come at a time of increased uncertainty about growth in the once high-flying mobile phone market. To return to growth, phone makers need to sell more advanced and, therefore, more complicated phones, analysts said on Friday. Experience with these phones in the Japanese market, which is two years ahead of the rest of the world, suggests the worst has yet to come. Technical glitches forced Sony, NEC and Panasonic to recall a large number of Web-surfing mobile phones in Japan last year. "This is the challenge of the future which every mobile terminal manufacturer will be affected by," said Gartner Dataquest analyst Ben Wood. Analysts do not expect Nokia's strong brand to be significantly damaged by the production problem it blamed on a defective display component from one of its suppliers, but they said the fault could eventually hurt profits and its image. "Obviously it has an affect on the brand, but not on the company's financials. It is still only marginal in terms of total sales," said Evli Bank analyst Karri Rinta. "It is inevitable that something like this would happen given the high numbers they produce," Rinta said. Nokia had a global market share of around 35 percent in mobile phones last year with sales of 140 million units, more than double that of its nearest rival Motorola . The company issued a sales warning for the full year on Thursday, saying it saw almost no growth in industry-wide phone sales in 2002. Pressure Nokia said the number of phones with faulty screens, sold between October and January worldwide, amounted to significantly less than 10 percent of all the phones it produces. But the Finnish company declined to be more precise or say which component maker was responsible for the faulty screens. Analysts said pressure to maintain the industry's highest profit levels was a likely reason why Nokia failed to spot the problem after several months of receiving the faulty component. They said rival mobile phone manufacturers Motorola, Siemens and Sony Ericsson have had a rate of up to 10 percent of returns due to faulty phones. "Maybe it is because they have cut the capital working days to such an extent that something gets lost on the way, perhaps quality control," said Lehman Brothers analyst Stuart Jeffrey. But Torsten Bressme at German cellphone insurer ProSystec said it planned to stop insuring retailers against risks on five Nokia models from May 1. Some 70 pct of all Nokia phones are returned to shops at least once during the two-year warranty period, compared with an industry average of 10 percent, he said. Jeffrey was concerned to know why Nokia had failed to spot the problem with a phone model that was quite basic in terms of technology, unlike the new models being launched in coming months that have in-built digital cameras, colour screens and can be used for picture messaging. However, analysts said given Nokia's reluctance to be the first to add new technology to its phones versus its rivals, it was less likely to face technological problems in the future. "Given Nokia's cautious introduction of new technology, they will be less affected. Nokia is solid and reliable even if its products are not seen as the most exciting," said Jeffrey. Room For Improvement In an unusual mea culpa, Nokia Chief Executive Jorma Ollila admitted on Thursday there was room for improvement in its quality control process but cautioned about the future. "Increasing software complexity, extreme usage requirements, weight and size restrictions and high production volumes will put even greater pressure on quality standards," Ollila said. Retailers reacted on Thursday to what is believed to be Nokia's biggest-ever mobile phone production failure after experiencing problems with two of its models in 1999 and 2000. Carphone Warehouse , Europe's largest mobile phone retailer, has suspended the sale of Nokia's popular 8210 model after a large number of customers complained that the screens on their phones suddenly went dead. This comes only days after a survey of 100 mobile phone retailers in Finland found that a quarter of Nokia handsets sold this year had been returned to shops because of faults. "I can't remember Nokia ever having such a big problem with their mobile phones. This must be the biggest," said a former Nokia employee. In 1999 and 2000 Nokia, which makes one in three of every mobile phones sold, had software problems with its Internet-enabled 7110 model and display problems with its 8210 fashion phone. Ollila sought to reassure clients by saying the problem was fixed but admitted it had hurt first-quarter volumes. "The component problem has been fixed already since February and it is very much under control," Ollila said in connection with the company posting stronger-than-expected first-quarter profits but issued a sales warning for the full year. << - Eric -