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Nokia's North America problem

To stay No. 1 in high-end cellphones, the Finnish phonemaker has to take on Apple and RIM on their home turf. So far it hasn't got a foothold.

By Jessi Hempel, writer
January 12, 2009: 9:47 AM ET

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Nokia's newest smartphone, the N97, inspires awe even among iPhone lovers. But who knows when it will be sold in the U.S.?
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(Fortune Magazine) -- A few hours before the global launch of Nokia's latest high-end phone, the company gave a sneak peek at the gadget to a dozen bloggers and journalists gathered at its swank Midtown Manhattan concept store. With an elegant touchscreen that slid open to reveal a full keyboard, the device evoked lust in even the iPhone disciples present.

So when can we get it in the U.S.? The company's answer: "Globally, sometime in the first half of 2009." The U.S. launch will come after that. No carrier has been announced. In other words, just about never.

There's no disputing Nokia's dominance in the cellphone market. With sales of $70 billion, it holds 40% of the market globally. Interbrand ranked it the world's fifth-most-valuable brand, behind the likes of Coca-Cola and IBM. In parts of rural India, Nokia (NOK) is to "phone" what Kleenex is to "tissue": a synonym.

But in North America, despite a marketing blitz that includes two new American concept stores, a series of popular Nokia music venues, and a flashy billboard campaign peppering New York City's subways, Nokia's market share has slid to just 8% from 15% two years ago, according to research outfit IDC.

That is a huge problem for Nokia because North America is quickly becoming the world's fastest-growing market for so-called smartphones, those high-end devices that surf the web. Any cellphone company that hopes for world domination must lead the smartphone market too.

Nokia CEO Olli-Pekka Kallasvuo calls North America "extremely significant," explaining that devices designed in the U.S. and Canada - namely Apple's (AAPL, Fortune 500) iPhone and RIM's (RIMM) BlackBerry - influence products in other countries. The iPhone single-handedly made people more comfortable browsing the web from their palms, and it has spawned a wave of innovation among software developers in Silicon Valley.

Key missteps

Nokia has reinvented itself many times over, but it has never quite found a way to transform itself into a phonemaker relevant to Americans. Founded as a paper mill during the Industrial Revolution, Nokia became a rubber maker, a cable business, a radio company, and finally a leading cellphone manufacturer.

It briefly gained a foothold in the U.S. in the late 1990s, when AT&T sold Nokia phones with its groundbreaking flat-rate wireless calling plan. But Nokia insisted on a one-size-fits-all model for its products. For example, it missed out when North American customers started to prefer flip phones over Nokia's signature candy-bar-style phones.

Nokia also refused to cater to American phone companies' whims. In Europe and Asia, consumers usually buy phones and telephone service separately, so Nokia needs to please only the end user. In the U.S., where phones and service are sold together, carriers want control over the way the phones look and perform. (Another challenge for Nokia is that the dominant wireless standard in North America is CDMA; most Nokia phones are designed to operate on the global standard, GSM.)

A few years ago Nokia got serious about North America. It installed its chief financial officer in the U.S. It opened new offices in Atlanta to be close to AT&T Mobility; last year it did likewise in Parsippany, N.J., to be near Verizon Wireless. And the company put several hundred product developers in its San Diego design center to work in collaboration with AT&T (T, Fortune 500) and Verizon Wireless on some new products.

Those efforts have paid off for straight-up cellphones. The first phone jointly designed with AT&T, a thin clamshell called the 6555 that looks an awful lot like Motorola's (MOT, Fortune 500) once-hot RAZR, appeared last May. At AT&T's behest, Nokia produced the phone in several different colors and changed the positions of some of the buttons. In December, Nokia launched its third Verizon (VZ, Fortune 500) phone, an elegant midrange gadget that Verizon named Mirage. T-Mobile sells eight different Nokia handsets. None of them are smartphones.

The problem is not the product. The n97 might not be ready for sale, but Nokia's e71, which looks like a sleeker version of the BlackBerry Curve, has won design awards and dominates many European markets. And it has several phones in its n-series of multimedia devices that boast the best cameras and videocams in the biz. North American president Mark Louison says U.S. carriers will soon support the phones. But ask the phone companies, and they say they have no plans to roll out Nokia smartphones anytime soon.

By lagging in smartphones Nokia isn't just missing out on sales; it may also be losing the attention of software developers that make cool games and applications for mobile devices, a growing number of which operate in the U.S.

Nokia is reinventing itself yet again as an Internet company, a sort of Yahoo.com for your phone. It is trying to woo application developers to its mobile platform through offices in Silicon Valley and Boston. You'd think it would be tantalizing to write software for the world's largest mobile platform. But ask developers worldwide to show you their favorite mobile apps, and they'll probably pull out their iPhones.  To top of page

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