Nokia sees US improvement in 2008

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Nokia, the world’s largest mobile phone maker, rubbed salt in the wounds of Motorola, its main rival,by reporting a first-quarter net profit of $1.33bn (€979m) compared with the US company’s $181m net loss.

Competition between the two has transfixed the industry, but Motorola’s ill-fated attempt to build market share by slashing prices has backfired and the Finnish company has exploited its weaknesses.

Their contrasting fortunes represent revenge for Nokia after Motorola sought to oust the Finnish company as the market leader when it missed a global trend towards clam-shell phones in 2004 and its sales collapsed.

Armed with its stylish phones, Motorola increased its global market share rapidly from 14 per cent in 2003 to 22 per cent in 2006.

But Nokia estimated on Thursday that its global market share was 36 per cent, up from 35 per cent last year. Motorola’s market share fell to 17.5 per cent.

Olli Pekka Kallasvuo, Nokia chief executive, said on Thursday: “We do not have a ‘do whatever it takes to crush the number two guy’ strategy. We just make tactical moves.”

The dominant theme to emerge from Nokia’s first-quarter numbers was its continued ability to sell cheaper phones to the world’s largest developing markets, China and India.

Research issued on Thursday by Global Insight, a US market analysis company, concluded that China and India would account for 60 per cent of the expected 1.2bn new mobile subscribers over the next five years. Nokia has put these markets at the centre of its plans, although the prices it is able to charge the consumers in both countries have come down.

These downward pressures have eroded profit margins, and in the first quarter, Nokia’s operating profit margin was 12.9 per cent compared with 14.4 per cent in the same period last year. The average selling price of its handsets in the first quarter stabilised at €89, the same as in the fourth quarter of last year but down from €93 in the third quarter.

Nokia believes that securing a dominant position in emerging economies will lead to sales of more expensive handsets and services. It says that more than 60 per cent of all emerging market business will come from existing Nokia owners upgrading to other Nokia devices in 2007 and that 58 per cent of global devices to be sold in 2007 will be to emerging markets, up from 51 per cent in 2005.

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