Nokia missing China's lucrative New Year season

Supply woes in key market could hurt comeback efforts

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BEIJING -- On billboards across Beijing, in subway stations and on banners outside its stores, China Mobile is inviting subscribers to "Change Phones for the New Year!" with Nokia's Lumia 920T.

That's not as easy as it looks. Most China Mobile outlets won't carry the 4,599-yuan ($738) device ahead of next week's holiday, with the largest Chinese operator blaming delivery shortages. While 90,000 Lumia 920T models were ordered through Jan. 30, Nokia shipped only 30,000, said Li Yan, a China Mobile spokeswoman.

Nokia missing out on the Chinese New Year shopping season is another stumble for the Finnish company two years into a comeback attempt driven by the Microsoft-powered Lumia. After U.S. holiday sales trailed estimates, Nokia risks a repeat in the largest handset market, which it once dominated and is trying to win back from Android devices and Apple's iPhone.

"China is the hottest market by far now and everybody is circling around trying to get in as much presence as they can," said Neil Mawston, an analyst at Strategy Analytics in London. "Nokia must not fail in China because it would place their entire worldwide recovery effort at risk."

Nokia led smartphone sales in China with a market share topping 50 percent as recently as two years ago, only to let it slip away after ditching its own Symbian operating system in favor of Microsoft's Windows. Local rivals such as Lenovo and China Wireless Technologies, as well as giants Samsung Electronics and Apple, have left Nokia with a meager 1 percent share, according to Strategy Analytics.

The Chinese Lunar New Year, which is today and is followed by a weeklong holiday, is a gift-giving season in China comparable to the peak Christmas shopping rush in the United States. Retail sales during last year's New Year holiday week rose 16 percent to $75 billion.

"Nokia's production is still very low and supply isn't meeting demand at this point," China Mobile's Li said in a Feb. 1 interview. "Many of our stores don't have any units."

Rivals available

The shortage threatens to let rivals widen their lead as China Mobile's New Year campaign also features Samsung's Galaxy Note 2, Lenovo's A798T, the Coolpad 8190 from China Wireless, the MT788 from Google's Motorola Mobility, and HTC's T528t.

Two China Mobile outlets visited by a Bloomberg News reporter at Beijing's World Trade Center and on Guanghua Road on Feb. 1 said they received none of the Lumia 920T models and expected no delivery until after the holiday. The five rival devices were available at outlets visited by Bloomberg.

Nokia acknowledged last month that supply constraints have held back sales, saying it is working to overcome the issue. James Etheridge, a Nokia spokesman, declined to comment on shipments to China Mobile or reasons for supply constraints.

"We are now building more capacity as we speak to match the demand, and we would expect that at some point in the not too distant future, we would be in a situation where we are no longer constrained," Timo Ihamuotila, Nokia's chief financial officer, said on a Jan. 24 conference call.

Shares of Nokia have declined for five straight years, dropping more than 80 percent since Google's Android software and Apple's iPhone were unveiled in 2007.

Chief Executive Officer Stephen Elop, who joined from Microsoft in 2010, started betting on his former employer's operating system after Nokia's homegrown Symbian software fell out of favor among consumers in Europe and the U.S.

Elop made the influential U.S. market a cornerstone to Nokia's Lumia smartphone strategy, striking deals with the two largest wireless carriers. Still, Nokia's sales in North America reached just 700,000 handsets last quarter, compared with about 35 million for market leaders Apple and Samsung combined.

While Nokia placed more focus on the U.S., the mobile device market in China exploded. In the past few years, it overtook the U.S., India, and various western European countries as the world's biggest market. China smartphone shipments will rise 44 percent to 300 million units this year, IDC forecast Dec. 17.

"Nokia had a massive head start over everybody five years ago, but they let it slip," Mawston said.

Nokia is re-entering China with more profitable handsets and plans to be more aggressive in lower price points as well, Elop said on Jan. 24, adding demand was outstripping supply.