Business Watch: Nokia, Apple

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The Finnish mobile maker claims that Apple infringed 10 Nokia patents with the technological make up of the iPhone. It’s all set to get rather technical and nasty.

The handset market has a rich history of patent infringement suits. Last year, Nokia ended a three-year legal war with silicon chip maker Qualcomm that involved more than a dozen separate suits across three continents. You can probably expect this case to drag on just as long and be equally complex.

The patents in this law suit, filed in the US state of Delaware, cover wireless data, speech coding, security and encryption, according to Nokia.

Ilkka Rahnasto, Nokia’s vice president for Legal & Intellectual Property (yes, that is how seriously they take it) said that whilst 40 of the main handset vendors have licensed Nokia’s technologies for their devices, the company has not reached agreement with Apple.

“By refusing to agree appropriate terms for Nokia’s intellectual property, Apple is attempting to get a free ride on the back of Nokia’s innovation,” said Rahnasto in a statement.

Some analysts think that if Apple loses it might have to shell out as much as $1 billion to compensate Nokia for the technologies used in the iPhones it has sold so far.

Ben Wood, well respected research director at CCS Insight, told Reuters it was “almost inconceivable” that anyone can produce a mobile phone without using Nokia patented technologies.

Clearly then, Apple will have to have to fight its corner hard.

Neil Mawston at Strategy Analytics predicted that Apple could have to pay Nokia between $200 million and $1 billion for patents used in the 34 million iPhones shipped to date. And that’s before you even think about future shipments.

Nokia smartphone share
A quick glance at Nokia’s latest results perhaps explains why it is taking this case so seriously.

In the three months to September 30, Nokia’s share of the all-important smartphone market shrank from 41 per cent to 35 per cent.

A big reason for this vertiginous drop was the continued rise of the iPhone, which has captured the imagination in a way that no Nokia phone has ever managed.

“The scale of the smartphone market share loss must give the markets pause for thought over the coming days. Dropping six points in three months is pretty stunning,” said MKM Partners analyst Tero Kuittinen.

IHS Global Insight telecoms analyst Peter Boyland’s pointed out that Nokia faces increasingly fierce competition from not just the iPhone but RIM’s BlackBerry stable, and new devices such as Samsung’s Jet.

But Nokia’s chief financial officer Rick Simonson hopes that the trend will reverse in the fourth quarter, as Nokia responds with its own new high-end models like the new N97 mini (pictured) and the Linux software-based N900.

The question is whether these feature packed phones will carry the brand cache of the iPhone or the BlackBerry. As Simonson well knows, a big part of the smartphone market is fashion-driven.

Low-end war with East
At the same time, Nokia is facing a price squeeze at the cheap and cheerful end of the market from Chinese players ZTE and Huawei, which are moving aggressively into markets in Asia, Africa, and Latin America.

In response to these changes, Nokia has embarked on a sweeping cost-slashing drive, with the announcement of 1,700 job losses already in 2009. Boyland reckons this may now be beginning to pay off for the company but other analysts predict more cuts to come.

The good news for all was that, despite posting its worst ever result (thanks to a socking great write-down in the value of its network equipment business), Nokia actually raised its outlook for the mobile handset industry in 2009.

The world’s biggest handset maker now expects device volumes to fall by seven per cent, as opposed to the 10 per cent nightmare forecast it made at the start of the year.

It estimated that in the third quarter some 288 million mobile devices were shifted, which was down seven per cent year-on-year but up seven per cent from the second quarter, helped by the strong (but price-pressured) smartphone market.

A full recovery is still a while off then, but there were also some promising signs to be seen in Sony Ericsson’s latest figures and accompanying statements.

Sony Ericsson caution
The Japanese-Swedish joint venture reported a smaller-than-expected loss in the third quarter as its restructuring kicked in.

The company also predicted that market conditions will finally stabilise in the year ahead following a recession that has dealt the industry a hammer blow.

Unlike Nokia, Sony Ericsson still expects the mobile market will contract by 10 per cent in 2009 but it believes 2010 should benefit from a recovery in the global economy.

“If no big macro economic changes come our way, then we see a stabilisation in the market (next year),” global sales head Anders Runevad said on a conference call.

The company has managed to improve its gross margins but still has further to go if it is to break even. That means not only continuing to cut costs but selling more high-end smartphones, according to new chief executive Bert Nordberg.

“We are planning to widen the portfolio and we are planning to move upwards in the smartphone segment and in the coming quarters release products according to that,” he said.

Orange iPhone launch
And finally, Orange UK is to sell the iPhone on November 10, setting the stage for a pre-Christmas showdown with O2.

It is expected that Phones 4U and Carphone will stock the gadget on behalf of Orange, which will of course sell it through its own  stores.
In a cute twist the reported launch day would be the same day as Vodafone’s half year results. (Vodafone, has signed its own deal with Apple but hasn’t managed to get its hands on the iPhone until the New Year).

 

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