Emerging markets turn costs into lead balloons...
Revealing its latest set of financial results, Nokia announced it has seen the prices of its handsets fall by around 10 per cent year-on-year - and the company is expecting even further tumbles to come this year.
The fourth quarter of 2005 found Nokia's average selling price [ASP] falling to €99, compared to €111 during the corresponding quarter in the previous year. The Finnish giant attributed this drop to the impact of emerging markets, where cheaper, lower-margin handsets predominate.
Arja Suominen, VP of communications at Nokia, said the focus on conquering the relatively new mobile converts in countries such as China, India and Russia will ultimately pay off for Nokia as today's black-and-white handset owners will eventually move towards higher-end, multimedia-enabled handsets.
She said: "Our clear target has been to take mobility into new markets. By definition... they are at the low end but people even in those countries move upward."
China is one such example of a relatively young market that has already developed a hunger for handsets that go beyond the most stripped down voice functionality.
Suominen said: "China is an interesting market but the product mix is very healthy - you sell high end as well as low end." China now makes up around 10 per cent of all Nokia devices shipped, the company said.
Suominen added the continuing downward pressure on prices will not necessarily impact handset makers' bottom lines: "Low ASP is no bad thing. What's important is profitability. There needs to be a barrier but we haven't found it yet."
And, while Nokia is predicting a 10 per cent growth in the handset market during 2006, it looks like margins will be shaved even further.
Suominen concluded: "In the mobile devices market, we expect to see growth not only in volume but also in value but we expect there will be some decline in the industry's ASPs."