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America Zooms In On Camera Phones


For months, John D. Downey steered clear of phones with cameras, fearful that handling the click-on gadgetry would be complicated. But early this fall, the Sprint PCS Group (PCS) customer was seduced by a simple Sanyo SCP-8100 with a built-in camera. Suddenly, Downey became a picture-snapping fanatic, shooting photos of his six kids to send to grandma. And as owner of Broski Fence Co. in Kansas City, Mo., he uses the phone to click and e-mail pictures of fence parts to suppliers. "Since it's always with me, I can use it on a daily basis and not get bogged down figuring out how the damn thing works," Downey says.

With wireless carriers pushing lucrative new photography and multimedia services, camera phones are suddenly hot in the U.S. From virtually nothing in 2002, sales of photo-friendly handsets should hit 5 million units this year and soar to 48.5 million in North America by 2006. Sounds like good news for the two biggest suppliers of mobile phones in the U.S., Nokia and Motorola, right?

It should be, but the shift also creates big risks. After all, during transitions to new technologies, upstarts have a rare opportunity to gain ground on established players. Nokia (NOK) should know: It went from nobody to No. 1 during the move from analog to digital phones in the 1990s, displacing Motorola. Now, Asian consumer-electronics companies are seizing this photo opportunity to challenge Nokia and Motorola like never before.

Although share figures are a well-kept secret in the emerging U.S. market, the trend is clear: Having unleashed a variety of models in America when demand finally took off in the spring, Asian phone makers have claimed the early lead. Samsung, for example, ships seven camera phones -- more than anyone else -- that make up 40% of its U.S. volume. That puts it at the top of the biz along with Sanyo, LG, and Sony Ericsson, according to Christopher S. Ambrosio, wireless director at Newton Center (Mass.) researcher Strategy Analytics Inc. Nokia lags just behind; Motorola is hardly in the game.

How did the Asians manage to do it? Thanks to speedy data networks that are more conducive to e-mailing pictures than are U.S. systems, demand for photo-snapping handsets took off in Asia three years ago. That has given Korean and Japanese phone makers a big headstart incorporating new capabilities into the complex handsets.

Moreover, many suppliers of camera components are Japanese, enabling Asian phone makers to work closely with them. The Asian players are also part of larger conglomerates that have decades of experience making consumer electronics -- expertise they leverage when producing multimedia phones. "We recognized that cameras would be a hot trend," says Peter A. Skarzynski, senior vice-president of Samsung's North American wireless division. "That helps us keep up with demand."

BARE-BONES PHONES

At the same time, market-leader Nokia's traditional strength -- a strong brand, honed through years of marketing -- may actually be hurting the company. As wireless carriers such as Sprint introduce promising new multimedia offerings, they want to highlight their own names and services as much as the manufacturers' brands. This damages entrenched icons such as Nokia and Motorola (MOT) far more than upstarts like Sanyo (SANYY) and LG.

But Nokia can't blame its challenges solely on the carriers. The company was early to the U.S. market with its 3650 camera model last fall, a phone that also takes video clips. But its clunky design and poor screen quality pale next to high-resolution, user-friendly Asian models. Moreover, Nokia has yet to deliver a picture phone to Verizon Wireless, the nation's biggest carrier, and to Sprint, the camera-phone leader. The reason: Nokia is a relative newcomer to the CDMA technical standard used by those and a few other U.S. carriers. To boost its presence in the U.S., Nokia has focused instead on bare-bones voice phones for CDMA carriers.

Of course, Nokia doesn't plan to let the Asians corner the U.S. camera-phone market. A new version of its video phone, with better color and a simpler keypad, is due this month. And Nokia aims to deliver at least four more camera phones by the spring. "You can be assured that the goal for Nokia is to be No. 1" in U.S. camera phones, says Randy C. Roberts, director of imaging for Nokia Americas. It had better hurry. Nokia "has higher share now than it will have next year unless it comes out with several more phones," says Strategy Analytics' Ambrosio.

That leaves Motorola, with its plodding engineer's culture, as the odd man out. The company delivered its first camera phone to T-Mobile in November -- 11 months after Samsung, and only in limited supply. Its failure to jump on the camera-phone trend early has cost Motorola dearly. The outfit has complained that it is unable to get key components. But its rivals, who locked in limited supplies early, have not been similarly hurt. As Motorola dithers and Nokia plays catch-up, Japanese and Korean phonemakers are quickly making their brands synonymous with the coolest technology. By Roger O. Crockett in Chicago, with Andy Reinhardt in Paris, and bureau reports


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