Nokia stumbles in China comeback as phones miss New Year

February 7, 2013 04:59 AM

On billboards across Beijing, in subway stations and on banners outside its stores, China Mobile Ltd. is inviting subscribers to “Change Phones for the New Year!” with Nokia Oyj’s Lumia 920T.

That’s not as easy as it looks. Most China Mobile outlets won’t carry the 4,599-yuan ($738) device ahead of next week’s holiday, with the largest Chinese operator blaming delivery shortages. While 90,000 Lumia 920T models were ordered through Jan. 30, Nokia only shipped 30,000, said Li Yan, a China Mobile spokeswoman.

Nokia missing out on the Chinese New Year shopping season is another stumble for the Finnish company two years into a comeback attempt driven by the Microsoft Corp.-powered Lumia. After U.S. holiday sales trailed estimates, Nokia risks a repeat in the largest handset market, which it once dominated and is trying to win back from Android devices and Apple Inc.’s iPhone.

“China is the hottest market by far now and everybody is circling around trying to get in as much presence as they can,” said Neil Mawston, an analyst at Strategy Analytics in London. “Nokia must not fail in China because it would place their entire worldwide recovery effort at risk.”

Nokia led smartphone sales in China with a market share topping 50% as recently as two years ago, only to let it slip away after ditching its own Symbian operating system in favor of Microsoft’s Windows. Local rivals such as Lenovo Group Ltd. and China Wireless Technologies Ltd., as well as giants Samsung Electronics Co. and Apple Inc. have left Nokia with a meager 1% share, according to Strategy Analytics.

No Lumias

The Chinese Lunar New Year, which falls on Feb. 10 this year and is followed by a week-long holiday, is a gift-giving season in China comparable to the peak Christmas shopping rush in the U.S. Retail sales during last year’s New Year holiday week rose 16% to $75 billion.

“Nokia’s production is still very low and supply isn’t meeting demand at this point,” China Mobile’s Li said in a Feb. 1 interview. “Many of our stores don’t have any units.”

The shortage threatens to let rivals widen their lead as China Mobile’s New Year campaign also features Samsung’s Galaxy Note 2, Lenovo’s A798T, the Coolpad 8190 from China Wireless, the MT788 from Google Inc.’s Motorola Mobility, and HTC Corp.’s T528t.

Two China Mobile outlets visited by a Bloomberg News reporter at Beijing’s World Trade Center and on Guanghua Road on Feb. 1 both said they never received any of the Lumia 920T models, and didn’t expect any until after the holiday. The five rival devices were available at outlets visited by Bloomberg.

Supply Constraints

Nokia acknowledged last month that supply constraints have held back sales, saying it is working to overcome the issue. James Etheridge, a Nokia spokesman, declined to comment on shipments to China Mobile or reasons for supply constraints.

“We are now building more capacity as we speak to match the demand, and we would expect that at some point in not too distant future, we would be in a situation where we are no longer constrained,” Timo Ihamuotila, Nokia’s chief financial officer, said on a Jan. 24 conference call.

Shares of Nokia have declined for five straight years, dropping more than 80% since Google’s Android software and Apple’s iPhone were unveiled in 2007.

Today, the stock rose as much as 3.9%, and traded 2.6% higher at 3.04 euros as of 5:18 p.m. in Helsinki.

Chief Executive Officer Stephen Elop, who joined from Microsoft in 2010, started betting on his former employer’s operating system after Nokia’s homegrown Symbian software fell out of favor among consumers in Europe and the U.S.

U.S. Focus

Elop made the influential U.S. market a cornerstone to Nokia’s Lumia smartphone strategy, striking deals with the two largest wireless carriers. Still, Nokia’s sales in North America reached just 700,000 handsets last quarter, compared with about 35 million for market leaders Apple and Samsung combined.

While Nokia placed more focus on the U.S., the mobile device market in China exploded. In the past few years, it overtook the U.S., India, and various western European countries as the world’s biggest market. China smartphone shipments will rise 44% to 300 million units this year, IDC forecast Dec. 17.

“Nokia had a massive head start over everybody five years ago, but they let it slip,” Mawston said.

Nokia is re-entering China with more profitable handsets and plans to be more aggressive in lower price points as well, Elop said on Jan. 24, adding demand was outstripping supply.

New Mode

“We’re shifting into a mode now, where we’re essentially starting with a fresh new portfolio of products,” Elop told a conference call. “The Lumia 920, which is on China Unicom’s network, and the Lumia 920T on the China Mobile network combined with other Lumia products that you are seeing or will soon see land in China, really give us that fresh approach.”

Samsung led in China with a 16% market share in the third quarter, according to researcher IDC. A host of domestic vendors have also surpassed Nokia with low-cost smartphones, including Lenovo, China Wireless, ZTE Corp. and Huawei Technologies Co., which rounded out the top five vendors in the nation. Apple ranked sixth, with a 6.6% share.

Demand for the Lumia exists in China, according to Li Azi, a 22-year-old university student in Kunming, in China’s southwest Yunnan providence. Li is one of China’s 1.34 billion residents who are upgrading old phones to take advantage of the country’s expanding third-generation mobile networks.

“I like the Lumia 920 because of its design, the operating system,” Li said. “It has personality. I want to get a Lumia 920 but I haven’t bought it yet.”

Two Decades

Nokia, which has been present in China for more than two decades, has an extensive distribution and sales force in the country. The challenge for Nokia is to revive the brand’s attractiveness, said Sandy Shen, an analyst with Gartner Inc. in Shanghai.

“The key is to improve the brand mindshare so people will consider Nokia whether it’s a holiday or not,” Shen said. “The Nokia brand has slipped a lot from the consumer mind in recent years due to the lack of star products.”

The deal with China Mobile, announced in December, was a good step forward for Nokia. China Mobile is looking for a flagship smartphone to help it combat the iPhone, which isn’t compatible with its homegrown 3G network standard.

To improve its chances, Nokia needs to make sure it doesn’t let down consumers like Lin Sanmu, who was looking to trade up from his Nokia 6120C at an electronics store in Beijing’s eastern Chaoyang district.

“I got five years of use out of my last Nokia phone and that’s pretty good,” Lin said. “Nokia is good quality. Now, I’m looking to upgrade from a feature phone to a smartphone so I can use the Web.”

Still, Lin left the shop empty-handed because it didn’t have the Lumia model he wanted.

Bloomberg News

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