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Nokia slashes prices to up market share ante

Rolls up sleeves for imminent manufacturer slugfest

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After a year almost in the shadows, Nokia is back in the cellphone limelight and is showing its aggressive face to those seeking its crown.

It has already thrown down the gauntlet to Google with its free mapping and navigation promise, a move that is already shaking up the personal navigation space. In the first weeks of this year, it has also cut prices on its mass market phones and plans heavy advertising behind key media devices like the latest X6 music handset.

With its eyes on Samsung's leap in market share in the last quarter, Nokia seems to be gearing up for a price war, having reportedly addressed some of the rare inefficiencies that were creeping into its mighty supply chain in mid-2009. It cut prices across its portfolio last week, making its 5230 the cheapest Symbian device on the market and going head-to-head with Samsung, LG and Sony Ericsson in the midrange.

Nokia generally reduces prices across its range a few times a year as it introduces new models and adjusts to changes in demand, but this was particularly stringent. Reuters news agency reports that prices were slashed by as much as 10% on a broad basis.

The 5230 is now retailing for €170 ($239) unlocked, or as little as $110 on pay-as-you-go, and its wholesale price is below €120. This makes it hugely competitive in developing economies and in the expected boom area for early 2010 - the affordable open OS handset. This rises in importance as first-time smartphone users and the youth market shift away from featurephones.

The 5230 is typical of the breed of phones targeting this space. It has the same 3.2-inch touchscreen as the popular 5800 music smartphone, and many of the same features, but skimps on a few areas, such as memory, to keep the cost down. It incorporates GPS and Ovi Maps, including turn-by-turn navigation and 3D landmarks, and Symbian S60 5th Edition.

Nokia needs to leverage its huge economies of scale to ensure that pushing smartphone capabilities into the mainstream does not impact its margins disastrously. In the fourth quarter of last year, the average wholesale price of its smartphones dipped from €190 in Q309 to €186.

This will mean keeping its higher margin models desirable, which may entail higher advertising spend in the short term, one executive agreed last week. For instance, Nokia plans to spend "multiple millions of euros" in several key European markets, including the UK, to support the new 16Gb iteration of its X6 phone, and pitch the handset far more directly against the iPhone.

The new device will ship on February 24 and boasts the biggest marketing budget ever for a single product Nokia release, according to Marketing Week.

Copyright © 2010, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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