Bloomberg News

Nokia Cuts Smartphone Prices as Share Drops, CCS Insight Says

July 05, 2011

July 5 (Bloomberg) -- Nokia Oyj, the world’s biggest maker of mobile phones by units shipped, cut its smartphone prices in Europe by as much as 15 percent at the beginning of this month, according to analyst firm CCS Insight.

“We’ve absolutely seen the drops,” Ben Wood, a London- based analyst with CCS, said in an interview. “They’re under aggressive pressure from entry-level players and equally their customers in the channels know they’re in a strong negotiating position.” Reuters reported the price drop earlier today, sending the stock down as much as 3.1 percent.

The Espoo, Finland-based company is trying to keep up sales of its older Symbian smartphone lines as it readies the first models based on Microsoft Corp.’s Windows Phone 7 software for the fourth quarter. Chief Executive Officer Stephen Elop announced the shift in February, adding that the company still expects to sell another 150 million Symbian smartphones. Nokia spokesman Doug Dawson said price cuts are routine in the company’s business and he had no comment on the reports.

“All the major houses cut prices two to six times a year, typically in small adjustments,” said Neil Mawston, a London- based analyst at Strategy Analytics. “For a company like Nokia, anything above 5 percent is an above-average adjustment. With revenue declining sharply because of unusually weak demand, they’ve got to make these large price cuts.”

During the past 10 years, Nokia’s average annual price cut has been about 9 percent, he said.

Nokia shares fell 1.5 percent to close at 4.37 euros in Helsinki trading.

‘Whatever It Takes’

“Nokia’s going to do whatever it takes to make sure users remain and that they’re able to move across to the new platform, so it makes sense to incentivize the older products,” said Carolina Milanesi, an analyst at research firm Gartner Inc.’s Egham, U.K. unit. “Nokia has to do what it has to do to keep it interesting for the operators -- which is basically taking the risk of subsidy away from the operators.”

Many operators have subsidized mobile-phone purchases in the past to attract customers or lock them into a long-term contract. The practice is starting to disappear in highly competitive markets such as Denmark.

Nokia has lost more than 25 percentage points of market share in smartphones, the most lucrative and fastest growing category of mobile phones, since Apple Inc. introduced the iPhone in June 2007, according to Gartner figures. Its smartphone market share for the first quarter was 25.5 percent, according to Gartner.

Operating Margin

Nokia said May 31 that the adjusted operating margin for the main handset business in the second quarter “could be around breakeven” as competition and pricing pressures increased in China and Europe. The pressure was both on smartphones and low-end phones, CEO Elop said. The company scrapped its forecast for the year.

Nokia will report a second-quarter net loss, according to the average estimate of 15 analysts surveyed by Bloomberg as of today.

“You could think of the price cuts as a Symbian tax now that Symbian is no longer as fashionable as some other lines,” such as Google Inc.’s Android operating system, said CCS Insight’s Wood. “And of course the iPhone stands by itself,”

--Editors: Robert Valpuesta, Jim Silver.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net


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