ESPOO, FINLAND (Bloomberg) — Nokia Oyj, the world’s biggest cell-phone maker, is in an unusual situation: For the next year or so it must persuade its customers to buy old-technology phones.
That’s because the faster mobile phones capable of surfing the Internet won’t arrive until the second half of 2001, giving customers a reason to delay buying. In the meantime, Nokia is prettying up its existing phones with such new features as color screens and watertight casings for canoeists.
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“At the edge, you will have issues with replacement,” said Alister Hibbert, who helps manage $20 billion in assets at Invesco Asset Management Ltd. in London. He expects up to 10 percent of subscribers may consider delaying their purchase.
Rivals Motorola Inc. and Ericsson AB also are waiting for the faster service. Nokia’s large share of the cellular phone market, 27.5 percent, makes the Finnish company especially vulnerable to slower demand for phones, analysts say. Nokia gets 72 percent of its sales and 81 percent of its operating profit from making phones.
The issue is a temporary one. Sales are expected to accelerate once the new phones are introduced. For now, it could affect the share price. When Nokia said in July that slower growth in demand would cause third-quarter profit to decline, shares fell 21 percent.
Nokia says people will keep buying its phones, first for new features on existing technology, then later to navigate the Internet when so-called General Packet Radio Service, faster transmission, arrives.
“The important thing to realize is that consumers’ criteria for upgrading their existing mobile phone models are extremely varied,” said Matti Alahuhta, head of Nokia’s phone unit, noting that with 700 million phone owners worldwide, many select phones based on appearance or lifestyle rather than new technology.
While some producers, such as Motorola, already have introduced GPRS phones, sales aren’t taking off because phone companies have not yet completed the networks to carry the signals. Nokia doesn’t expect GPRS sales to reach a significant level before the second half of next year.
Nokia estimates global mobile phone sales at 550 million units next year, up from an estimated 400 million this year. Of this year’s buyers, the company says up to 50 percent will be users upgrading their old phones.
Still, Nokia’s net income in the third quarter was 40 percent higher than the same period a year earlier as it took market share from competitors. The stock is up 38 percent since the Oct. 19 report, trading today at 48.6 euros.
The change to the faster phones “will likely cause some transition, but that will mainly be in the business user segment,” said Juha Ruskola, chairman of the Finnish Association of Electronics Wholesalers.
Ruskola said business users, up to 25 percent of total mobile phone subscribers in Finland, will buy the new GPRS phones in the second half of next year, bringing the full-year sales increase to par with current forecasts.
“It may well be that some (business users) do want a GPRS phone and therefore don’t upgrade” before the technology becomes available, said Angela Dean, an analyst at Morgan Stanley Dean Witter & Co.
One company looking into postponing its buying decision is Stora Enso Oyj, Europe’s largest maker of paper. The company may buy fewer phones during the first half of next year than in the second, according to Yrjoe Rouhunkoski, who oversees the buying of the company’s mobile phones in Finland.
Ericsson, the No. 3 cell-phone maker, said last month it will move handset production to some low-cost countries to cut losses at the phone unit and allow plants in Sweden and the U.S. to make network equipment.
