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Global Insight Perspective
The world's number-one handset maker has announced seven new basic handsets priced below 100 euro (US$136), which will be shipped to select markets in the second and third quarters.
Nokia's new handsets are aimed at emerging market consumers, delivering a number of new features—like digital cameras and Bluetooth technology—to the entry-level market.
New releases in Nokia's entry-level portfolio signal that the Finnish handset vendor is as serious about retaining its position as the world's leading supplier in the low-end segment as it is about developing its feature-rich premium multimedia-heavy N-series and the business-oriented E-series.
Nokia has launched seven low-end mobile handsets at an event in New Delhi, India, which will retail at estimated prices of between 35-90 euro, before applicable taxes and subsidies.
Outlook and Implications
Attractive and Affordable: By embedding new features like imaging, Bluetooth and GPRS connectivity, combined with a stylish design in the Nokia 2630 and Nokia 2760, the Finnish vendor aims to make its basic handsets not only affordable but also attractive to the entry-level market. In addition, by combining a digital camera with Bluetooth technology, Nokia introduces its entry-level consumers in the emerging markets to sharing user-generated content on the go, which is consistent with the global mobile Web 2.0 trend. Nokia expects that FM radio, plus direct-access shortcut keys and MP3 ringtones, are designed to satisfy the entertainment side, while email, MMS, a calendar, an extended phonebook and a calculator cater for the work-related demands.
Emerging Markets: The new low-end portfolio will enable Nokia to reinforce its leading position in emerging markets. According to Nokia, its entry-level 1100 model and its models in the 1100 family (1101, 1108, 1110, 1110i, 1112) had surpassed the 200 million-unit milestone, which indicates sales of more than a million phones a week. The new revised basic portfolio signals that Nokia is ready to capitalise on the dynamically growing emerging markets. The entry-level handsets still account for a large proportion of Nokia's sales. Last year, the Finnish vendor shipped 146 million phones retailing at below 50 euro, more than double the previous year, representing 42% of its total units sold. Nokia sold a total of 347 million handsets in 2006. According to the company's estimates, the global handset market will grow by approximately 10% this year, which equates to sales of 1.08 billion handsets, against 978 million shipped in 2006 (see World: 28 March 2007:Q4 2006 Mobile Handset Update).
Cost Control: Nokia, however, anticipates the increasing impact of the emerging markets on a continued decline in the industry average selling price (ASP) of a handset. Already in the first quarter of this year, a higher proportion of entry-level phones due to strong sales in the emerging markets contributed to a decline in the ASP per handset to 89 euro, against 103 euro a year earlier (see World: 20 April 2007: Nokia Ends Q1 with Stronger Margins Despite 6.6% Y/Y Decline in Net Profit). The company operates on handset operating margin of 16.8% as of the end of March 2007 and considers cost control to be a crucial part of its strategy. The large volumes of entry-level handsets enable Nokia to create cost synergies along the supply chain. In addition, the company only outsourced 23% of its total production last year, with in-house manufacturing being key to its efficient cost control. For comparison, according to a report in Reuters, the world's number-two player, Motorola, outsourced 41% of its handset production in 2006, with Sony Ericsson’s statistic standing at 66%.