Price war hits Nokia market share

 

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Posted on 8 Sep 2008 at 11:05

Nokia says it is ready to lose market share in order to protect profits, as the price war bites.

The company says it expects the mobile device market in 2008 to be hit by weak consumer confidence and also cited tough competition in developing markets, its stronghold.

"Most alarming for me is that Nokia's saying it's seeing more pressure in the low end of the market," says analyst Neil Mawston at Strategy Analytics.

"That really defines its profits, volumes; it gets a lot of economies of scale out of it. Nokia really dominates that area."

Analysts claim Nokia is likely to lose ground to smaller vendors which are cutting prices in the hope of winning increased orders in the competitive business.

Nokia says margins at its core Devices & Services unit would fall below 20% in the third quarter.

"In certain markets and in certain areas, including in some of the low end, we are meeting aggressive pricing that we believe may not be sustainable," says Nokia Chief Financial Officer Rick Simonson.

"So it really is not margins. What we're talking about is units here," he added.

However, even below 20%, Nokia's operating profit margin could still be superior to rivals. Margins at Samsung and LG were below 15 percent in the second quarter, while Sony Ericsson and Motorola are struggling to make profits.

Nokia stuck to its forecast of overall market volume growth of at least 10% and says it is still targeting an increase in its device market share over 2008 as a whole.

Nokia will report third-quarter results on 16 October.