Could Nokia drive handset recovery as early as Q2?

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Could Nokia drive handset recovery as early as Q2?

By CAROLINE GABRIEL

Published: 9 February, 2009

READ MORE: Nokia | Handset

As phonemakers struggle through the current dire quarter, the big question for handset market pundits is when the sector will reach rock bottom and start to show a measure of recovery. Now there is growing positive market sentiment around Nokia and the prospects for an early uptick, which, given the Finn's share of handset sales, would affect the whole segment.

Though there may be an element of analysts talking up Nokia in the desperate wish for good news - the market leader itself has given a poor forecast for Q1 and is tightlipped about visibility for the rest of the year - there are growing indicators that things could be looking up for Nokia as early as the second quarter. In a research note from Jeff Kvaal at Barclay's Capital Research, the industry will clear sufficient handset inventory to return to a normal level (4-5 weeks) by the end of March.

The chief beneficiary of a return to normal inventory levels - even with far lower rates of demand than a year ago - would benefit Nokia above all, because it is in the process of putting significant new models, including several touchscreens and musicphones, into the market for mid-year. Nokia is also expected to strengthen its hand with new Ovi web services, tightly integrated with the new handsets, and the roll-out of its own applications store, to rival those of Apple, RIM, Palm, Google, and soon Samsung and Microsoft.

Nokia is said to have increased its chipset orders for March delivery, with its purchases geared around touchscreen components (though some of the sources of this news are dubious), and it has succeeded in creating significant operator and consumer interest in its first touch device, the 5800 'Tube', especially with its keen pricing.

Other phonemakers that are about to launch well positioned midrange smartphones - the key growth sector for the rest of 2009 - should also take advantage of the clearing of inventory. The two Koreans and HTC should be particularly successful in this respect. HTC's second Android phone is set to arrive in Q2, although the Taiwanese company is cautious in its outlook. Posting a full year revenue hike of 28.7%, to $4.5bn, it nevertheless saw net profit fall by 1% to $293.1m, and said it expected low single-digit growth in Q1, with a guidance of $979.5m in revenue and gross margins stable at 30%. However, it is looking forward to major improvement in Q2, on the back of its new Android handsets.

Meanwhile, LG's flagship launch at next week's Mobile World Congress was the Arena (or KM900), which features the company's 3D S-Class user user interface, a cube-based layout with four customizable home screens for direct access to all features, especially multimedia content.