Technology

Next Up for Nokia: Netbooks, Banking


The Finnish phonemaker is responding to Apple's iPhone by forging into new businesses. Some analysts say it has a fighting chance

The conventional wisdom about Nokia is decidedly downbeat. Wall Street analysts say the Finnish handset maker is in for unimpressive profits as it loses share in the lucrative market for smartphones. Credit Suisse is the latest bank to turn sour on Nokia shares, downgrading them to "underperform" from "outperform" on Sept. 1 and predicting that the company will have trouble fending off competition from Apple's (AAPL) iPhone, BlackBerry handsets from Research in Motion (RIMM), and phones using Google's (GOOG) Android operating system.

Nokia (NOK) did its level best to counter the conventional wisdom during its annual Nokia World extravaganza in Stuttgart, Germany, on Sept. 2-3. There, as Nokia promoted new products and services, the mood was far less somber than at industry events a few months earlier.

Some analysts came away persuaded that Nokia has regrouped and is poised to use its formidable distribution power to forge into new businesses such as mobile banking and netbook PCs. The company has spent several years absorbing a host of acquired companies in fields such as mobile navigation and music. Now, Nokia could be regaining its stride, says Carolina Milanesi, wireless industry analyst at market watcher Gartner (IT). "All these disjointed pieces are coming together," Milanesi says.

No Fan on Nokia's Netbook

Much of the chatter among developers, business partners, analysts, and journalists at Nokia World focused on Nokia's new Booklet 3G mini-laptop. Nokia had announced its first mobile PC on Aug. 24, but it disclosed more details in Stuttgart. Nokia watchers immediately wanted to know what would distinguish the $800 device in the crowded netbook market, especially since Apple is expected to launch its own competitor next year. Many netbooks now on the market cost hundreds of dollars less.

The answer boils down to battery life and software, says John Hwang, a former Yahoo! (YHOO) executive who led Nokia's crash effort to develop the Booklet, scheduled to hit store shelves by yearend. Nokia exploited its expertise in power management and battery technology to give the device 12 hours of working life. The Booklet requires no cooling fan, which makes it quieter as well as more energy efficient.

In addition, Hwang said, the Booklet will be the only device in its class to run Microsoft (MSFT) Windows 7 Home Premium. The new version of Windows is supposed to be more streamlined and efficient than its sometimes clunky predecessors. And for those who are dying to know what colors the aluminum-clad Booklet will come in, the answer is: black, white, and azure blue. The Booklet is the first of a line of Nokia mini-laptops, Hwang said. "It's the beginning, not the end."

No Bank Account Needed

Other Nokia executives portrayed the new product as just one in a series of initiatives. Potentially more momentous in global terms is Nokia's push into mobile banking. Similar services in countries such as Kenya have been hugely successful because they let people without bank accounts do money transfers, make purchases, and carry out other simple transactions using text messaging.

For the service to work, Nokia needs to enlist the help of banks and network operators, and it has to sign up thousands of retailers to act as Nokia Money agents. But the company has a head start because of its large distribution network and connections with shopkeepers in places like China who will collect and issue payments. Nokia plans to profit by earning a small fee on transactions, but it should have no trouble undercutingt conventional money transfer services, which charge commissions as high as 15%. "There's definitely a disruptive opportunity there," says Mary McDowell, a Nokia executive vice-president who is overseeing Nokia Money. The service will work on any brand of phone, a sign that Nokia Money is not merely a ploy to sell handsets.

Nokia is also stepping up efforts to encourage software developers to write programs—better known as apps—to run on smartphones. The proliferation of games, information services, and other apps for the iPhone is one reason for the Apple product's phenomenal success. Nokia used the Stuttgart event to launch software tools that make it easier for developers to write apps for Nokia. Some programmers had complained that the process was too complicated and time-consuming.

Long-Term Risks

No one is claiming the company has solved all of its problems. Nokia remains weak in the U.S., which has become the incubator for innovation in the mobile Internet. And it's still struggling to make its products and services as easy to use as those from Apple. "The usability has improved, but it's still not perfect," Niklas Savander, a Nokia executive vice-president for services, said in an interview with BusinessWeek.

But even critics say Nokia should not be counted out. In the note to investors downgrading Nokia, Credit Suisse also said the company could be a good bet in the long term. As smartphones become cheaper, Nokia will be able to exploit its size to manufacture more efficiently, the firm's analysts wrote, adding: "Despite near-term risks for Nokia, we would not overstate risks for the company longer term."

Ewing is BusinessWeek's European regional editor.

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