Nokia loses Chinese market

Nokia Oyj?isn't just losing mobile- phone market share to iPhone maker Apple Inc, but also loosing its dominance in China as prices sink, Bloomberg reported.?

Nokia's second-quarter handset shipments in China fell to 11.3 million, less than half the?first quarter's number and 41 percent less from a year ago. That, combined with a 30 percent drop in European sales, contributed to a greater-than- estimated 20 percent slump in Nokia's handset sales worldwide, the report said.

Stephen Elop, Chief Executive Officer of the Finnish company, faces the dilemma of where to focus his resources: Nokia is racing to meet its year-end target of shipping its first phone based on Microsoft Corp's Windows Phone software. At the same time, he needs to halt the decline in China as models based on Google Inc's Android software have fallen below 100 euros ($144) and started cutting into Nokia's lower-end feature-phone sales, said Michael Schroeder, a Helsinki-based analyst with FIM Bank.

"They've been a clear market leader for many years, but now it seems that era is coming to an end," said Schroeder, who has a "hold" recommendation on Nokia shares. "I don't think you lead that market with 11 million devices sold."

At its earnings conference call Thursday, Elop said he had taken steps to address the build-up of inventory at Chinese resellers that helped trigger a profit warning in May. The inventory overhang could have been as many as 5 million handsets, according to an estimate by Sami Sarkamies, a Helsinki-based analyst at Nordea.

Nokia also replaced managers in China and has named global sales chief Colin Giles as interim head, according to the report.

Inventory movements

"There is softening of demand but the inventory movements were substantial," Elop said. Failing to reverse the sales decline may endanger the CEO's plans to sell 150 million handsets based on Nokia's Symbian software during the transition to Windows Phone.

Nokia's market share in China was 19.1 percent in the first quarter, compared with 23.5 percent a year earlier, according to Gartner Inc estimates. Samsung Electronics Co, the No 2 vendor, had an 8.9 percent share, said Carolina Milanesi, an analyst with Gartner's Egham, England-based unit.

Operators like China Mobile Ltd and China Telecom Corp are playing a bigger role and Nokia needed to "worry about market share" and make "aggressive changes," Elop said on May 31. He had just spent a week in China to look at what changes were needed there to position for Windows Phone.

ZTE, Huawei

Beijing-based China Mobile had 617 million customers at the end of June, making it the biggest mobile-phone operator by subscribers. In China, Nokia competes with local manufacturers including ZTE Corp, TCL Corp and Huawei Technologies Co.

"There are dozens of local competitors making feature phones, and also manufacturers of Android devices," Schroeder said. "The cheap Android phones are stepping on the toes of Nokia feature phones."

China has been fertile ground for smaller manufacturers building handsets around chipsets from MediaTek Inc and competing with Nokia on styling and new features such as dual- SIM slots that let users make calls on different networks. In the past quarter, Nokia started selling its first dual-SIM phones in India and Southeast Asia. The handsets are easier to use without rebooting than rival models, Elop said.

Torchbearer

Giles, a 48 year-old Australian engineering graduate, worked his way up to president of China over 15 years, then added the rest of northeast Asia before joining the executive team in Espoo. He was promoted to global head of sales in February when Elop announced the linkup with Microsoft.

A runner and triathlete, Giles carried the Olympic torch on the Great Wall during the Beijing Olympics.

"It makes sense that if you have a guy who's been responsible for China earlier and has been successful in the job and now you have a situation where you need to change management, he's probably able to hit the ground running," said Sarkamies. "It's an important job for the company and clearly one of the pain points for the time being."

One advantage Nokia still enjoys is that it has one of the most extensive channel setups in China, working with operators and at the same time present in the tier 3 and tier 4 cities, said Gartner's Milanesi. "They're down to the small mom and pop shops," she said.

Quarterly loss

Nokia yesterday reported a wider-than-expected net loss of 368 million euros, its second quarterly loss in two years. Boosting the handset division was 430 million euros in royalty payments on its patents, including a lump-sum payout from Apple Inc after the June settlement of lawsuits about the iPhone.

The stock rose 2.5 percent yesterday to 4.18 euros in Helsinki, paring its decline this year to 46 percent.

Android, which is used by dozens of handset vendors from Samsung Electronics Co to backyard workshops in China, passed Symbian as the most popular smartphone operating system in the first quarter, according to Gartner. Sandy Shen, a Shanghai- based Gartner analyst, predicted that Android may account for 50 percent of smartphone share in Asia in 2015.

"Android's now the top operating system in the US and Europe and I think next year it is going to surpass Symbian to become number one in Asia-Pacific as well," she told Bloomberg Television in an interview last week.