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Cheap smartphones to shine in grim handset market

HELSINKI - Cellphone makers are expected to report buoyant sales of lower-priced, feature-packed smartphones as consumers opt for 'cheap chic' amid the global recession.

Research in Motion, the second-largest maker of smartphones after Nokia, surprised investors on April 2 with strong profits fuelled by consumer-oriented, more affordable Blackberry models, and gave a rosy outlook.

Nokia is set to report a sharp fall in January-March profits when it releases quarterly results on April 16, with strong sales of its cheap touch-screen 5800 smartphone expected to be one of the few bright spots.

“The 5800 has clearly been a big success and may well prove to be Nokia’s biggest profit driver in the first half of 2009,” Nomura analyst Stuart Jeffrey said in a note.

The focus in the phone market this year has shifted increasingly to smartphones, as operators move subsidies to support consumers buying the feature-packed devices, which can generate more data revenue.

Sales of smartphones such as the Blackberry are expected to rise some 10-20 percent, compared with a fall of 10 percent or more in the overall market.

“The market share of smartphones is taking over from feature phones at an alarming pace,” said Sean Dalton, general partner at Highland Capital Partners.

The world’s No 4 handset maker, Sony Ericsson, is the most exposed to the demand for feature phones—mid-ranged phones focused on key features like cameras or music players—and the company shocked investors on March 20.

Sony Ericsson said it would make a steep first-quarter loss, while phone sales would almost halve from the previous quarter, hit by weak demand and retailers cutting inventories.

Sony Ericsson will report on April 17, LG Electronics on April 21 and Samsung Electronics on April 24.

Clunky iPhone Killer?

Nokia dominates the smartphone market with around a 40 percent share, but has steadily lost ground over the last quarters to new rivals like Apple, which launched its iPhone in 2007.

JP Morgan said Nokia’s market share stability in the fourth quarter may suggest its “smartphone on a budget” offerings like the 5800 are beginning to resonate with consumers.

“Even among (or maybe especially among) investment bankers we notice a new “cheap chic” attitude to consumption,” JP Morgan analysts said in a research note.

Nokia introduced the 5800, its first touch screen phone, only late last year, but analysts said the lower price helps it beat iPhone sales in the Middle East, Eastern Europe and Asia, and there has been strong demand also in developed markets.

“In Britain, Nokia seems to be struggling to meet demand as channels run out of stock on a regular basis,” said CCS Insight analyst Geoff Blaber.

Analyst Tero Kuittinen from GC Capital said Nokia could ship more than 2.5 million 5800s in the January-March quarter, matching rough estimates for iPhone shipment volumes.

“Outside the US market, it is emerging as ‘the poor man’s iPhone’ - a device with clunky and old-fashioned software, but much cheaper price, better camera quality, lower weight and far superior stand-by time,” he said.

“In New York or London, consumers do not mind the bad voice quality and battery problems of the iPhone. In Jakarta or Moscow, consumers are far more performance- and value-oriented,” Kuittinen said.