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High-flying Nokia now dependent on cheapies

Phones? They're what phones will become

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Exclusive Nokia is one of the world's best known brands, and spends a lot of money keeping it that way. The Finnish giant splashed out £175m ($340m) on advertising alone last year.

Much of this advertising is designed to remind us that we're inadequate unless we have one of its latest high-end pieces of gadgetry, which grow ever more sophisticated each year.

"It's what computers have become," the latest campaign reminds us. As well as enormous brand advertising, Nokia seeds prototypes of these expensive toys with drooling bloggers in the hope their uncritical enthusiasm will catch on amongst the rest of us. In fact, the conventional wisdom for many years has been that Nokia's high-end, high-margin multimedia devices are the company's future.

But the reality that's emerging from the hard numbers tells a remarkably different story, we learn from a research note issued by Dresdner Kleinwort Investment Bank (DKIB), and seen by The Register.

Nokia is now "reliant" on sub-€50 budget models, says DKIB Research. And far from being the company's past, cheapo handsets may be Nokia's future.

Sub €50 handsets grew to take up 42 per cent of Nokia's sales in 2006, the company's CFO revealed last week. If that's true, DKIB says, "then, one can conclude, the lower priced segment made up all (100 per cent) of Nokia's shipment growth last year".

DKIB extrapolates that Nokia's sales of "above €50" remained flat at around 202 million units last year, which is a retreat in what is a growing market. Or as the research note put it, "a volume share attrition to the tune of 200bps [base points] as the market grew by around nine per cent".

By contrast, Nokia's thriving low-end added 500bps last year. Shipments doubled to 146 million, and Nokia commands two thirds of this budget market.

"If the current trend continues, then parity should soon be attained between the 'above' and 'below' €50 product categories," DKIB warns. "Unless management takes special efforts to kick-start demand for the more luxurious models (N95, E-series, 8600 etc) through dedicated marketing campaigns, we would anticipate the 200m barrier to mark the 'point of cross-over'."

It's a remarkable observation. When we posted a piece a year ago entitled Whatever Happened To...The Smartphone?, we didn't expect this to happen, let alone so soon.

In 1988, London's Victoria and Albert Museum, with the help of advertising agency Saatchi & Saatchi, began to brand itself as "an ace cafe with quite a nice museum attached". It's going to be hard for us industry-watchers to start thinking of Nokia as a budget phone company with "a nice multimedia division attached" - but perhaps we should.

Phones? They're what, er ... phones will become. ®

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