Nokia Edges Closer to 40% in Q2 Handset Market Share as Key Rival Falters

Finland-based telecoms equipment vendor Nokia has cemented its position at the top of the mobile-handset market, boosting its market share to 38% at the end of June 2007, from 34% a year ago. The market-share boost, largely at the expense of key rival Motorola, capped an impressive second quarter for Nokia, steadying new chief executive Olli-Pekka Kallasvuo in the job, and allaying investors’ fears over the post-Jorma Ollila era. Nokia shipped 100.8 million mobile handsets in the quarter, compared to 78.4 million units a year ago and 91.1 million units in the first quarter of 2007. The company has seen significant growth in the emerging markets of China and South America through the success of its low-end devices, while still increasing its dominance in the high-end market of Europe (see World: 29 May 2007: Q1 2007 Mobile Handset Update).

Besides its devices boost, a 94% year-on-year (y/y) rise in revenue from the company's Enterprise Solutions division and a 42% y/y revenue rise from the Multimedia division helped push overall group revenue by 28% y/y to 12.59 billion euros (US$17.24 billion). Group operating profit was up 57% to 2.36 billion euros, while net profit more than doubled at 148% y/y to 2.83 billion euro. Commenting on the result, Kallasvuo said Nokia continued to grow in the second quarter thanks to an excellent performance from the company's device businesses. "Nokia's share of the global device market improved to an estimated 38%…I am particularly encouraged by the success of a number of recently launched higher end devices, which made a strong contribution to increased profitability," he added.

Outlook and Implications

• The Motorola Bonanza: Unfortunately for U.S.-based handset vendor Motorola, Nokia's performance, plus the gains of Sony Ericsson and Samsung, has come at its expense. Motorola's handset problems are well documented, driven largely by the failure to replicate the success of the now-dated RAZR range. The company has seen handset sales fall dramatically in successive quarters, inevitably leading to its dethronement from the second spot by Samsung. The market remains highly competitive, with Sony Ericsson and Samsung both experiencing increased sales growth on the back of their high-end multimedia ranges and increased focus on the emerging markets (see World: 12 July 2007: Falling Sales Continue for Motorola While Sony Ericsson Rises, 19 April 2007: Motorola Slides into Q1 Loss, 2 March 2007: Motorola's Strategy: Improve Low-Cost Handset Margins and Profits and World: 5 January 2007: Motorola Misses Q4 Mobile Device Targets).

• Nokia's Vision Beyond 40% Market Share: With Nokia edging ever closer to its dream 40% market share, the company has begun the process of diversifying its business base. Kallasvuo set the pace for his vision in June 2006, outlining plans to diversify into new fields in readiness for the convergence of the internet, mobility, IT and music. Since then, Nokia has snapped up mobile-music firm Loudeye, navigation-software firm gate5 and media-sharing firm Twango, plus investing in start-ups Kyte.tv and Skyhook Wireless. Nokia has also invested heavily to develop its smartphone range of devices, particularly its N-series, and continues to be linked with a potential takeover for rival handset maker Palm. Despite not performing excellently so far, Nokia's joint venture with Siemens is also in the acquisition market, with a reported US$7 billion bid for infrastructure vendor, Tellabs (see World: 24 July 2007: Nokia Siemens Reportedly Offers US$7 bil. for Tellabs, 24 July 2007: Nokia Buys Media-Sharing Firm Twango, 9 August 2006: Nokia Pays US$60 mil. for Mobile Music Firm, 12 June 2007: Nokia Invests in Video-Sharing Start-Up, Kyte.tv, 13 April 2007: VC Funds, Nokia, Intel Provide US$8.3 mil. In Financing For Skyhook Wireless, 1 September 2006: Nokia Acquires Navigation Software Company, gate5 and 2 June 2006: New CEO Set to Expand Nokia Further).