Nokia E71x seen as key to growth in US market

New Nokia phone goes on sale just in time to compete with the Palm Pre

At the International CTIA Wireless show in Las Vegas earlier this month, Nokia had one of the biggest booths, but it was mostly hidden near the back of a major hall.

It was a fitting symbol for how weak the world's largest mobile phone maker is doing in U.S. sales. Still, one of the phones it had on display was the newly announced E71x smartphone, seen by many as a way for Nokia to increase its U.S. customers.

Thursday, the Helsinki, Finland, company announced a 90% drop in profits in quarterly earnings but also said its global share of sales is 37%, making it easily the world's largest mobile phone provider.

Still, for many reasons, Nokia had only 8.4% of the U.S. market in 2008, a drop from about 20% three years ago, according to IDC and several analyst firms.

Nokia's first quarter financial figures showed it sold 30% more phones in North America in the first quarter of 2009, reaching 3.4 million units, and up from the 2.6 million units sold in the previous year. Even with that surge in sales, North America is by far Nokia's smallest sales region. However, North America also was the only region to show an increase in sales in the quarter. Unit sales were down worldwide by more than 19%.

The mobile phone maker sold the most devices in the Asia-Pacific region, followed by Europe, according to information from Thursday's earnings call.

All of which begs the question, why hasn't Nokia been bigger in the U.S.? More importantly, how will it grow?

To the second question, Nokia clearly has pinned hopes for U.S. growth on the E71x smartphone, which AT&T Inc. will be selling in May for US$100 after rebates.

An AT&T spokesman said Thursday that the E71x will go on sale in "early May," meaning it will be on store shelves just before the mid-May expected launch of the highly anticipated Palm Pre.

At .39 inches thick, the E71x has been called the thinnest smartphone with a QWERTY keyboard. It also will provide ActiveSync, giving users access to Exchange e-mail.

Sean Ryan, an analyst at IDC, said AT&T appears ready "to put a big marketing push behind the E71x." The smartphone's inclusion of ActiveSync as well as Lotus Notes Traveler will give it appeal among U.S. enterprise customers, he noted.

AT&T's influence on Nokia sales could be significant. In a recent interview with Business Week, Nokia executive vice president of devices Kai Oistamo said that working closely with U.S. carriers is what will make the difference in sales in the U.S. "We are already seeing the first fruits," he said.

But Ryan and three other analysts said Nokia still faces an uphill battle in the U.S. market. "The competitive challenges for Nokia are not small," Ryan said. "It is not going to be easy."

Nokia's poor showing in the U.S. may mostly be traced to having few phones to sell with CDMA carriers Verizon Wireless and Sprint Nextel Inc., the analysts said. AT&T, however, provides a GSM network, the standard that predominates in the rest of the world.

A Nokia spokeswoman noted that Verizon sells the company's 7205 Intrigue, which is equipped with a camera and other features, for use over the CDMA network for $129. However, analysts said CDMA is still an exception for Nokia.

Another reason is that Nokia devices run on the Symbian operating system, which is well-respected, but clearly a stranger to U.S. enterprise IT shops, where Research In Motion Ltd.'s BlackBerries and devices using Microsoft Corp.'s Windows Mobile operating system predominate.

"Symbian definitely resonates better with European customers, but Nokia is working to alter the OS to meet the cultural preferences of the U.S. market," Ryan said. "I suspect AT&T is guiding them along in this."

Allen Nogee, an analyst at In-Stat, also said Nokia has a limited U.S. presence, although the decline of Motorola Inc. has given Nokia a chance to move into its territory.

Both Ryan and Jack Gold of J. Gold Associates said Nokia has traditionally been seen as a provider of low-cost phones, including the N Series phones, which have a multimedia and consumer focus. The E series, with some enterprise features, could help Nokia compete against Windows Mobile devices and the BlackBerry.

That is where the E71x comes into play. "The next shift in the market seems to be smartphones," said independent analyst Jeffrey Kagan. "Can Nokia make the shift and compete with Apple and RIM?"

Looking at Nokia's drastic drop in profits for the first quarter when compared with the challenges to sell to U.S. customers, Kagan added, "This will be an important year for Nokia. Will they rebuild, or will they struggle?"

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