Nokia profits slump - build smartphones or die

Nokia’s first three months of 2009 have apparently seen a drastic 90 per cent plunge in profits in comparison to the same period last year, reports The Guardian.

The drop is being blamed on the wintery global economy, consumers retaining older handsets in exchange for better tariff deals and retailers holding back on restocking until the current shelves have been emptied.

All very good points that undoubtedly had an adverse effect on the handset manufacturer’s profits. But Nokia’s own figures demonstrate another area of sales that is looking increasingly vital for all handset manufacturers - smartphones.

With the new trend for feature rich devices being led by the iPhone, it seems any electronics company ignoring this rapidly growing slice of the market does so at its peril. Nokia’s first touchscreen device, the 5800 XpressMusic, was its only saving grace this year, having seen reasonable success with three million units sold since its launch in November.

Sony Ericsson has reported similarly devastating losses in early 2009, and has yet to address the high-end competition posed by the iPhone, Android and Blackberry. As smartphones begin to work their way into BRIC markets such as China, India and South America, the problem is likely to worsen for latecomers to the feature rich handset market.

Apple has also proven that consumers expect more from their handsets (or, moreover, their handset manufacturers) in the shape of online application stores. It’s been clear for decades that games consoles are sold on the strength of their available software - not their technical specifications - and it seems the mobile market might be heading the same way.

It’ll be interesting to see if Nokia’s new Ovi store will help it improve handset sales, though what will happen to Sony Ericsson, if this is the case, is anybody’s guess.