Nokia Ups Mobile Forecast; Can They Lead In Mobile Music? (NOK)

| About: Nokia Corporation (NOK)

At Nokia's (NOK) shareholders' annual meeting, CEO Jorma Ollila told participants:

There is huge diversity between geographic areas and markets in terms of consumer preferences and behavior. In addition to continuous growth in voice communication, other industries like music and digital imaging are quickly becoming more integral to mobility.

Due to strong subscriber growth, we have now updated our global mobile device market volume estimate for this year. Nokia estimates that in the year 2006, the mobile device market volume will increase globally 15% or more from our estimate of 795 million units in 2005. Previously, we estimated that the global mobile device market volume would grow 10% or more this year from last year's estimate.

So what are Nokia's chances of becoming a leader in mobile music? WSJ's Magnus Hansson published a piece (sub. required) this morning on Nokia's attempts to play catch-up in music playing phones. Key points from Hansson's analysis:

Huge Market: Music is where it's at. According to iSuppli, the 2005 market for music players was 129 million units ($14 billion).

Tough Competitive Landscape: Nokia suffered technical setbacks, meaning it will enter a crowded market. Sony's Walkman hasn't taken off, but Sony Ericsson, with five models currently in the market, sold three million music phones in 2005. Motorola's iTunes phone ROKR did not take off (it stored only 100 songs), but an improved version will hit the market within three months. Motorola's SLVR l7 also offers iTunes in the US.

Declining ASPs: For the first time, the ASP of Nokia's models dropped below €100 ($120) in Q4 (down from €150 three years ago). Can music players boost the ASP? According to Hagstroemer & Qviberg analyst Mattias Cullin, "This is one thing that gives upside potential for Nokia".

Nokia's Offering Has Been Weak: Nokia's high-end N91 suffered multiple delays, and is hitting the market at €700 (compared with Sony Ericsson's W950i at €500). The 3250 model (see photo), a lower-end offering, will be widely available in April. According to Hansson:

Analysts say the 3250 is the most important of Nokia's new models. It has enough storage for 300 songs and a megapixel camera. Analysts praise its quirky design, with a keypad that twists into different positions. But the 3250 doesn't work on high-speed third-generation mobile networks that offer faster downloads of music files and the ability to listen to streaming music. It is expected to be priced at €350 before subsidies or taxes...

Many analysts say Nokia has the market presence, distribution and brand awareness needed to make it successful in the music-player market. The strategy to establish itself without riding a well-known music brand, such as the Walkman, however, carries some risk and could backfire if the company doesn't move swiftly to launch more attractive models and establish credibility in this market.