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Go East, Nokia
washingtonpost.com Staff Writer Monday, May 24, 2004; 9:35 AM
The Financial Times and The Associated Press reported that Nokia announced its Chinese expansion plans after surprising industry watchers with its recently lackluster performance. "Last month Nokia warned that sales and profits were being hit by a slump in its market share caused by gaps in its product portfolio. Since the warning, its shares have fallen heavily amid a wave of analyst downgrades," the paper said. "Nokia has responded to the drop in market share by cutting prices on many models and increasing its marketing spend." And from the AP: "Known for its sleek handsets and innovations and regarded as an industry bellwether, the Finnish company last month shocked markets when it announced lower earnings and sales for the first quarter and lowered forecasts for the second quarter, citing increased competition from American and Asian rivals like Motorola and Samsung."
China's cell phone marketplace is growing exponentially, which makes it attractive territory for Nokia. "China, the world's largest mobile- phone market by users, said subscriptions rose to 296 million in April, exceeding the U.S. population for the first time, as China Mobile (H.K.) Ltd. and China Unicom Ltd. boosted sales," Bloomberg reported today. "The nation added 5.4 million accounts in April, bringing new accounts this year to 27 million, the Ministry of Information Industry said. At this rate, the number of Chinese who own cell phones may rise by half in less than two years, said CLSA Ltd. analyst Francis Cheung. 'There is still a lot of room there,' Cheung said. 'It's a huge country.'" That certainly helps explains why Nokia has China fever all the sudden.
The same article concluded, however, that "Nokia has a bit of catch-up to do in China when it comes to competing against rivals such as Motorola Inc., Siemens AG and Alcatel SA, which have already been moving to capitalize on the growing market, Pescatore said. Motorola, for example, has repeatedly said it aims to go into the China market aggressively, and at the beginning of this year, announced it had signed contracts worth in excess of $1 billion with telecommunications carriers in mainland China. 'I'm not saying that Nokia is coming too late to the Chinese market, but the company as a whole has been struggling to maintain its traction,' Pescatore said. 'This is a sign that the company is beginning to refocus on the emerging markets as it has promised to do in the past.'"
Jorma Ollila, Nokia's chairman and chief executive, explained more in a statement: "China is definitely a strategic part of Nokia's global R&D network. With increasing depth in China's talent base and an improving regulatory environment for R&D, we see excellent opportunities to expand our collaboration with leading domestic institutions. This cooperation will boost technology innovation and localization, enabling us to strengthen our R&D in key areas and respond to Chinese customer needs." More on the CDMA research and development facility in Beijing, per Nokia: "The new R&D facility will focus on software support and technical expertise in CDMA technology, catering to the unique market and operator-specific needs of CDMA in China. It will also serve as a center for technology transfer and local talent development and is expected to be fully operational in June this year." The Financial Times said Nokia, "which is battling to regain market share in the face of a competitive onslaught from US and Asian rivals, said about 40 per cent of the phones produced by its Mobile Phones business group would be designed and developed in Beijing." The Beijing unit "will develop cheap phones for first-time customers in emerging markets. This gives it an important role at a time when an increasing portion of Nokia's handset sales are coming from emerging markets. Nokia employs 4,300 people in China. The company made it clear cost was one reason for the decision to increase its R&D in China, but stressed that it was not moving jobs out of Finland, its biggest R&D centre," the newspaper reported.
A side note: The latest issue of Business Week magazine has a profile on Nokia and its efforts to revitalize its profits.
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