Japan loses its appeal to Nokia as the company cuts R&D budget

Nokia's exodus from Japan continues with the recently announced plans to downsize its R&D operations affecting 220 people. Nokia had about 300 employees on payroll in Japan before the announcement. Apparently, Japan is not the only country with the R&D cuts. Denmark and Finland offices will also go through the painful process of reduction in the sign of developed markets being unable to compete with the combination of bright minds and cheap labor that the growing economies offer. Still, Nokia has interests in Japan through its Nokia Siemens and Vertu operations.

Source: Nokia

Nokia expands its Vertu luxury brand lineup in Japan

It was reported that Nokia is expanding its luxury lineup of Vertu phones offered in Japan via Vertu-operated MVNO by adding a Ferrari-themed Ascent TI model. The Ferrari phone is a limited edition model with just 2009 units to be sold worldwide. It is not clear how many models Nokia is planning to sell in Japan. The asking price is 1,200,000 Japanese yen or about 1,200 US dollars. It will go on sale from October 1st in Vertu's flagship store in Ginza, Tokyo. Nokia retreated from Japan's mobile phone market last year, keeping just R&D and Vertu operations. I expect it to be back in some time, say... when LTE deployment is in full swing in Japan?

Source: IT Mobile Media

Nokia in Japan: Keep a low profile for now?

Keitai Watch did a good coverage of Nokia’s event in Japan dedicated to the upcoming launch of FOMA NM705i handset model by NTT DoCoMo. The event also included a press conference with Nokia Japan CEO Tyler McGee. First, let’s start with the phone and then a couple of thoughts about Mr. McGee’s answers to the press.

FOMA NM705i – let others tailor their handsets for Japanese market?
The NM705i is a typical mass-market Nokia candy bar and that is what makes it interesting in terms of how Nokia intends to position it in the market dominated by smartphones featuring built-in TV tuners and credit cards. According to Nokia, the key concepts they are promoting are style and design, which turn the handset into an accessory by complementing person’s looks and feelings. They believe that young women in their 20-30s will find the NM705i appealing. Nokia mentions a sophisticated European design, global GSM/3G roaming, compact size, original interface of home screen, and pre-installed Japanese-English dictionary as other points that should differentiate this device in Japan. At the same time the model misses (intentionally, I assume) some Japan-market only features such as a one-seg TV tuner, contactless payments chipset, full music download service, GPS, DoCoMo’s i-channel and others.

Nokia's press conference
Video conferencing is one high-end feature that can be found on the NM705i and this is very illustrative of Nokia’s strategy. I’ll explain why later. According to Keitai Watch, Nokia CEO was also asked a question about one-seg and mobile wallet, the features missing from Nokia’s Japan bound phones. In Nokia’s opinion these features are getting popular but their take up is not big enough for Nokia to add them to Nokia’s products, but Nokia doesn’t rule out the possibility of using them in future as value-added features. I assume this means that Nokia doesn’t want to waste its resources to tailor its handsets to Japanese market’s specific needs. First of all, Japanese market is not significant for Nokia in terms of its yearly handset sales volume. Second, Nokia’s huge competitive advantage is economies of scale through the unification of feature sets for each handset product segment. None of other global markets require one-seg tuners or contactless chipsets at this time except Japan. Nokia is not going to change its production lines to manufacture one-seg phones for Japan only. However, once a particular feature like video conferencing gets a widespread uptake, Nokia will use its economies of scale to incorporate this feature into its phones and ship them globally. As the contactless payments-based mobile wallet feature gets its portion of attention worldwide, Japanese users can hope to purchase Nokia’s own mobile wallet phones.

In conclusion, there are still some opportunities for Nokia to expand its market share in Japan without adding technological advancements to its phones. The Japan market is going through some changes such as reducing its dependency on carriers’ handset subsidies and warming up to the idea of sales of unlock phones. These changes should play out nice for Nokia as its economies of handset production will allow introducing a variety of mobile phones at lower prices. However, before that happens I expect Nokia to continue keeping a comparatively small presence in the Japanese market.

Source: Keitai Watch

Nokia NM705i Specs
Model:	NM7059
Carrier:	NTT DoCoMo
Maker:	Nokia
Price:	N/A
Form factor:	Candy bar
Color variations:	Orange, Black, White
Weight:	89g
Dimensions:	105 X 46 X 15mm
Main display:	QVGA, 2" (320X240) TFT
Talk time:	144min (3G), 186min (GSM)
Standby time:	216 hours (3G/GSM)
Platform / OS:	N/A
Memory:	47MB
Memory card slot:	MicroSD card up to 4GB
GPS / Location:	No
Bluetooth:	Yes (ver. 2.0)
Infrared:	No
USB:	Yes (mini USB)
Wi-Fi:	No
Main camera:	2.0MP
Video calling:	Yes
One-seg TV:	No
Music player:	Yes (MP3, M4A, eAAC+, WMA)
Browser:	Not a full browser
FM radio:	Yes
Mobile Wallet:	No
QR-code:	No
Biometrics:	No

Nokia sells down-to-earth handset in Japan

It seems that Nokia believes it is time the Japanese tourists going abroad were brought down to earth with the 5070 model (on picture above), which stays away from any fancy stuff the cell phones in Japan are typically equipped with. At least, Japanese users will feel blended in when flashing their Nokias on the streets Vienna or Boston. The 5070 is a tri-band GSM900/1800/1900 phone selling for JPY18,690 ($152) in two colors: red and blue. It spots VGA camera and FM radio inside.

Source: Nokia press release (Japanese)

Japan market entry-strategy: Motorola and Nokia get into partnerships with local players

Motorola and Nokia are turning their heads toward Japan, seeking technical expertise and new channels for distribution. Motorola hopes to penetrate Japan’s market by co-developing a HSDPA prototype with NTT DoCoMo, while Nokia plans to expand its CDMA market share in North America, utilizing Sanyo’s good relations with US operators and know-how in building high-end CDMA handsets.

Motorola emerges as HSDPA handset maker
In preparation to launch HSDPA services in sometime between July and September of this year, DoCoMo partnered with two domestic vendors Fujitsu and NEC and one foreign vendor Motorola to add three HSDPA capable handsets to its lineup. Motorola said it would leverage the achievement of the joint development with NTT DoCoMo to actively undertake the Interoperability Test partnering with carriers and vendors from around the world. The HSDPA- to-be handset from Motorola is a clamshell-style mobile phone, which resembles the look of its icon product Razr.

Interestingly, Motorola was not mentioned in another announcement made by DoCoMo to jointly develop platform for WCDMA handsets. This time, DoCoMo picked Fujitsu, Mitsubishi, Sharp and chip maker Renesas. The newly developed phone platform will combine a single-chip LSI for dual mode handsets supporting HSDPA/W-CDMA and GSM/GPRS/EDGE, and core software such as operating systems. DoCoMo hopes to strengthen the adoption of WCDMA technology on a global basis, while Fujitsu, Mitsubishi and Sharp can pursue a long-term goal of going abroad with the unified platform. The companies expect to have the platform developed around Q2/FY2007 (July-September). It looks like the first handsets developed by the companies will spot Symbian OS, as Fujitsu, Mitsubishi and Sharp have Symbian expertise. However, taking into consideration DoCoMo’s strategy to keep its portfolio diversified (the company recently announced plans to release HTC Windows Mobile 5.0 smartphone), Linux or even Windows mobile phone makers are likely to join the camp later. Again, Motorola looks as a good candidate for this role, especially, considering its global footprint, the company could reinforce DoCoMo’s strategy of spreading WCDMA and i-mode abroad.

Motorola could also partner with a Japanese manufacturer to launch appealing phones that will help boost its presence in Japan, company’s chief executive said in a recent interview with Reuters. NEC, Panasonic and Sanyo were named as the manufacturers whom Motorola talked to. Now, with Sanyo joining forces with Nokia to develop CDMA handsets, Motorola is left with fewer options. But considering Motorola’s primary OS emphasis on Linux/ Java platform and Microsoft ‘s OS, these options are sweet. According to Strategy Analytics, NEC achieved second position in UMTS global handset shipments for the full 2005 year. Add to this NEC’s long-term commitment to develop Linux-based handsets for DoCoMo. In its turn, Panasonic decided to phase out its overseas 2.5G GSM mobile terminal operations and focus on the development of a global platform based on the Linux OS. If Motorola is going to create some kind of joint venture in Japan, it will be likely a vendor backing Linux OS.

Nokia tries to shoot two rabbits with one bullet
Nokia is a leading backer of Symbian OS for mobile handsets and its strategy to spread the technology across the globe. In Japan, Nokia is trying to grow by shipping Symbian handsets to DoCoMo, which encourages Nokia to do so. According to Nokia, “it’s not a broad portfolio strategy, but we’ll have some particular products that will support the Japanese market." Among Nokia's latest releases of handsets in Japan is the NM850iG (Nokia6630) model for DoCoMo's 3G service FOMA.

What bothers Nokia right now is its weak market position in the North America, especially in its CDMA segment. In quite a surprising move, Nokia announced a joint venture with Sanyo to make CDMA handsets for the global market. This is a win-win situation for Nokia as the joint venture will create opportunities to penetrate both the Japanese and North American markets. According to Wall Street Journal (WSJ), the combined operation is expected to control approximately 20% of the global CDMA market when it launches in the third quarter. “By signing the deal, Nokia's brand power as the world's biggest mobile-phone maker will be complemented by Sanyo's strength in the Japanese and the U.S. markets, company officials said. Also, the makers' strengths don't overlap because Nokia is strong in entry-level and mid-range CDMA handsets, while Sanyo is strong in high-end handsets, “ WSJ commented.

Wireless Week also questioned the consequences of this joint venture for Qualcomm:

“Besides the marriage for CDMA handsets, the joint venture raises the question about what role Qualcomm will play. Sanyo has been using Qualcomm's CDMA chips, while Nokia has used its own. Nokia and Qualcomm have been at odds over the years, with Nokia joining several other companies last fall in filing a complaint with the European Commission over alleged anti-competitive Qualcomm actions. “

However, it is possible that Nokia will abandon CDMA chipset business as Wireless Week provided a research note from Lehman Brothers:

“Lehman Brothers said in a research note that it expects Nokia to get out of the CDMA chipset business, leaving almost the entire market to Qualcomm. Nokia's CDMA chips have come from Texas Instruments. Lehman also said Nokia likely will have a slight minority share in the new company so it won't have to report the new company's profits and losses as part of Nokia's financials.”

These developments also should bring some value to Japan’s domestic handset makers as they can utilize the global marketing and distribution powers of Motorola and Nokia in order to re-enter and get a sizeable footprint in foreign markets as Japan’s market has no growth prospects any longer.

Foreign handset makers’ goal in Japan

Japan's leadership in launching 3G networks provides an opportunity for foreign handset makers to enter Japan's phone market, once being locked because of the proprietary 2G standard used by local mobile operators.

While Japanese carriers can cut costs by encouraging the import of handsets from abroad, the benefits for foreign manufacturers remain unclear.

Japanese market is saturated with a little opportunity for growth. The majority of handset sales is generated by replacement purchases of advanced handsets. Japanese consumers are tech savvy and spoilt by local vendors who offer attractive high-quality handsets.

Foreign manufacturers must present strong reasons to make Japanese users switch from local brands to international ones. So far, this attempt was not very successful. According to Financial Times (Jan.3, 2006), DoCoMo has managed to sell only about 20,000 out of 200,000 3G phones it procured from Motorola.

Perhaps, the main benefit foreign makers can get from their Japan quest is to learn from a joint development with domestic carriers. Working to meet the requirements set by Japanese carriers will provide manufacturers with the knowledge and skills they can use making handsets for other than Japan markets. Among the manufacturers who have expressed an interest in Japan's market are Nokia, Motorola, Korea's LG, Samsung and Pantech. The ones who should be worried are domestic handset makers who cannot match the economies of scale of large global manufacturers.