31 July 2008

Nokia cuts phone prices, pressuring rivals!

The world's top cell phone maker Nokia cut prices for many of its handsets in July, according to market data and industry sources, putting further pressure on its rivals' already thin profits.

Manufacturers are facing an increasingly intense battle for market share as demand for pricey phones has started to slow in the United States and Europe, where economies are under pressure from the global credit crunch.

Nokia made the steepest price reductions of up to 10 percent for selected music and media phones, while it made smaller cuts across the portfolio, a European telecom industry source said.

Shares in Nokia fell on the news and were 2.2 percent lower at 17.39 euros by 1321 GMT (9:21 a.m. EDT), underperforming the 1.8 percent weaker DJ Stoxx European technology index (.SX8P).

Market data from its home country Finland showed the sharpest falls were in the average retail price of the 5310 and 5610 music phones and the multimedia N81 8GB.

"This is basically a way to run away from competition. You're putting a lot of pressure on your less competitive peers," said David Hallden, analyst at Cheuvreux.

"I think they're doing a 'Crazy Ivan'," Hallden said, referring to a naval maneuver when a submarine makes a sudden sharp turn.

PRICING TACTICS

The price cuts from Nokia, which controls 40 percent of the cellphone market, will put further pressure on its smaller rivals like Sony Ericsson, which has focused on music and camera phones.

"Nokia has always been extremely tactical with its pricing, pinpointing sweet spots in different segments of the market and making adjustments to wrongfoot competitors," said Ben Wood, research director at CCS Insight.

Wood said the price cuts follow Nokia's launch of its SuperNova phone range -- aggressively priced products with integrated music players, challenging Sony Ericsson's Walkman portfolio.

Sony Ericsson made practically no money in the April-June quarter, and said it would cut some 2,000 jobs as it forecast the remainder of 2008 would also be tough.

Struggling Motorola, the third-largest phone maker, has made losses since its flagship phone Razr lost appeal among consumers.

Neil Mawston, analyst with Strategy Analytics, said Motorola could return to profit next year if it is able to slash costs and refresh its model range.

Nokia increased its market share to 41 percent in the second quarter, helped by surging demand in emerging markets, research firms Strategy Analytics and CCS Insight said on Thursday after Motorola reported better-than-expected April-June results.