News : Nokia cuts phone prices, pressuring rivals

By Tarmo Virki

HELSINKI (Reuters) - The world's top cell phone maker Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz) cut prices for many of its handsets in July, according to market data and industry sources, putting further pressure on its rivals' already thin profits.

Manufacturers are facing an increasingly intense battle for market share as demand for pricey phones has started to slow in the United States and Europe, where economies are under pressure from the global credit crunch.

Nokia made the steepest price reductions of up to 10 percent for selected music and media phones, while it made smaller cuts across the portfolio, a European telecom industry source said.

Shares in Nokia fell on the news and were 2.2 percent lower at 17.39 euros by 1321 GMT (9:21 a.m. EDT), underperforming the 1.8 percent weaker DJ Stoxx European technology index .

Market data from its home country Finland showed the sharpest falls were in the average retail price of the 5310 and 5610 music phones and the multimedia N81 8GB.

"This is basically a way to run away from competition. You're putting a lot of pressure on your less competitive peers," said David Hallden, analyst at Cheuvreux.

"I think they're doing a 'Crazy Ivan'," Hallden said, referring to a naval maneuver when a submarine makes a sudden sharp turn.

PRICING TACTICS

The price cuts from Nokia, which controls 40 percent of the cellphone market, will put further pressure on its smaller rivals like Sony Ericsson (6758.T: Quote, Profile, Research, Stock Buzz) (ERICb.ST: Quote, Profile, Research, Stock Buzz), which has focused on music and camera phones.

"Nokia has always been extremely tactical with its pricing, pinpointing sweet spots in different segments of the market and making adjustments to wrongfoot competitors," said Ben Wood, research director at CCS Insight.

Wood said the price cuts follow Nokia's launch of its SuperNova phone range -- aggressively priced products with integrated music players, challenging Sony Ericsson's Walkman portfolio.

Sony Ericsson made practically no money in the April-June quarter, and said it would cut some 2,000 jobs as it forecast the remainder of 2008 would also be tough.

Struggling Motorola (MOT.N: Quote, Profile, Research, Stock Buzz), the third-largest phone maker, has made losses since its flagship phone Razr lost appeal among consumers.

Neil Mawston, analyst with Strategy Analytics, said Motorola could return to profit next year if it is able to slash costs and refresh its model range.

Nokia increased its market share to 41 percent in the second quarter, helped by surging demand in emerging markets, research firms Strategy Analytics and CCS Insight said on Thursday after Motorola reported better-than-expected April-June results.

EMERGING MARKETS STRENGTH

Nokia has a dominant market position in many emerging markets like India, helping it increase phone sales volumes.

Motorola's market share fell to 9.4 percent in April-June, while Sony Ericsson saw its stake declining to 8.2 percent, CCS said.

LG (066570.KS: Quote, Profile, Research, Stock Buzz) and Samsung Electronics (005930.KS: Quote, Profile, Research, Stock Buzz) are seeing rapid increase in their phone sales, helped by close co-operation with operators, and the weaker Korean won that makes its exports more competitive.

Samsung's market share increased to 15.3 percent in the quarter, while LG's declined to 9.3 percent.

Korean vendors are better placed than Sony Ericsson and Motorola for a price battle with Nokia as both reported operating profit margins of more than 14 percent in the quarter.

Nokia's operating profit margin from phone business weakened somewhat to 20.3 percent in the April-June quarter.

A Nokia spokesman declined to comment on price cuts. "If we started to comment on prices, there would be no end, they are changed so often," he said.

(Additional reporting by Adam Cox in Stockholm; Editing by Erica Billingham and David Cowell)