Sony Ericsson Thrives While Nokia Dives
By Carlo Longino, Thu Jul 15 14:30:00 GMT 2004

The two company's latest earnings reflect the new landscape of the handset business.

Nokia unsurprisingly reported disappointing second-quarter earnings Thursday, with a 14-percent rise in profits offset by weaker sales. But even more damaging was the company's admission that sales and earnings in the current third quarter would come in well below last year's levels and analyst expectations due to continued intense competition but also from the deep price cuts it has enacted in an attempt to regain market share.

One problem hurting Nokia at the moment is that its major rivals are all performing well -- this is perhaps the first time that the rest of the top five or six vendors have been able to collectively and consistently execute at the same time. Sony Ericsson is no exception: the joint venture reported its fourth consecutive profitable quarter, with huge jumps in revenue and profits over the same period last year. Like Nokia, the company's average selling price is slipping, but attributes that to a changing product mix of more relatively cheaper GSM handsets than expensive Japanese models.

The company's differing fortunes clearly show what's going on in the handset business. Sony Ericsson's devices are developing a reputation as leaders in multimedia and imaging, and the company is riding the sustained popularity of models like the T610 and P900. Nokia says that its imaging products were the only segment that lived up to or exceeded expectations, and sales at its multimedia unit were up 24%.

Sony Ericsson's laser-beam focus on these products gives it an undeniable edge in today's market, while Nokia's intense belief in rigid segmenting could be undermining it. The company's reputation among consumers for innovation and exciting products has withered, and the attention it pays to mass-market, low-end handsets, particularly for developing markets -- Nokia's much bigger, more general mobile-phone unit rang up EUR 4.2 billion in sales, while the growing multimedia unit was only EUR 739 million -- seems to be taking away from resources that could be devoted to mid-range and high-end models where competitors like Sony Ericsson, Motorola and Samsung are eating its lunch.

Nokia's discovered that it takes a lot less time to lose a big chunk of market share than to gain it. The company's size and strength in the market lets it make short-term strategic moves, like its current price cuts, and makes them somewhat effective. But Nokia must make the fundamental changes to which its executives recently alluded to compete in this market. Its rivals are moving more quickly and nimbly, and are faster at coming out with more appealing handsets. The days are gone when everyone followed Nokia, and the company is now squarely back in the middle of the pack. It's got a lot of pushing and shoving to do to get back to the front.