Global Economics

For Nokia, Excess is a Vertu


Its luxury division is booming as a high-end cell phone becomes the latest status symbol for the world's richest people

And you thought you were a big spender, splashing out a few hundred on that Apple (AAPL) iPhone or LG (TK) Prada cell phone this holiday season.

For the very rich, a high-end cell phone means something else entirely. They're plunking down thousands —even millions—for handsets loaded with gold, gems, and other over-the-top extras.

The biggest purveyor of cell-phone bling is Vertu. This British subsidiary of mobile phone giant Nokia (NOK) makes phones costing from $6,500 to $72,500. Even the lower-priced models boast fine materials such as Italian leather and 18-carat gold, while top-of-the-line units are studded with hundreds of diamonds and other precious stones. And every phone has access to a concierge service that can help you, say, charter a private jet to the Bahamas.

That Warm Luxury Feeling

The market for such luxury is bigger than you might think. Parent company Nokia doesn't disclose sales figures, but Neil Mawston, associate director at the British telecom consultancy Strategy Analytics, reckons Vertu sells about 200,000 handsets a year at an average $8,000 each. That works out to a cool $1.6 billion, nearly 3% of Nokia's $58 billion revenues.

And, says Mawston, "Vertu is Nokia's version of Ferrari. It creates a warm luxury feeling for the rest of the phone line."

Vertu's president, Alberto Torres, says sales are on track to rise 120% this year. That follows 140% growth in 2006 fueled by booming sales in Russia, China, and the Middle East. "From what we've seen, the creation of a multibillion-dollar market in luxury phones over the next few years is very possible," Torres says.

Sales Up Everywhere

The success of Vertu contrasts with Nokia's strategy of bringing low-cost phones to the masses in emerging markets (BusinessWeek.com, 8/10/07) such as India and Brazil. Surprisingly, these countries are now some of Vertu's most important markets as the mega-rich across the developing world seek the trappings of their newfound wealth.

According to Vertu's Torres, sales in Russia already outstrip those of any country in Western Europe, while the Mideast market should clock triple-digit growth until 2010. Demand is strong in more developed countries, too, with U.S. sales up 200% last year. And Vertu plans to enter the tech-savvy Japanese market in the second half of 2008.

Now some luxurious extras on Vertu handsets are starting to migrate to less expensive Nokia models. In December the Finnish company unveiled two versions of its 8800 series, priced at almost $1,500—that include leather casings and sapphire-encrusted keypads.

Diamonds Are Forever, Until You Upgrade

"Nokia can use what has worked well at Vertu and take it to a wider audience," says Steven Hartley, senior analyst at London telecom consultancy Ovum. "Vertu will remain an aspirational brand, but its ethos will filter down into more mainstream phones." The relationship between Nokia and Vertu could help the Finnish company fend off rivals that are increasingly targeting superrich customers.

Already companies such as Switzerland's GoldVish and Russia's Gresso offer handsets with diamond finishings and solid gold cases that run into the thousands of dollars. The prize for the most expensive phone, though, goes to Russian data-protection company Ancort, whose platinum-covered, diamond-studded Crypto smart phone sells for $1.3 million.

Luxury watchmakers such as Tag Heuer (LVMH.PA) have announced plans to enter the luxury mobile phone market, too. And British custom-phone manufacturer Amosu has thrown its hat in the ring with a diamond-encrusted version of the iPhone that retails for $40,000.

"As Vertu makes more and more money, other vendors will start to look at this market more seriously," says Strategy Analytic's Mawston. For now, however, the combination of Nokia technology and strong customer demand gives Vertu a clear edge in this fast-growing luxury business.

Click here for the slide show.

Scott is a reporter in BusinessWeek's London bureau .

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