Nokia sees returns from services in 2010

NEW YORK Mon May 19, 2008 5:05pm EDT

Rick Simonson of Nokia Oyj speaks during the Reuters Global Technology, Media and Telecom Summit at the Thomson Reuters headquarters in New York City May 19, 2008. REUTERS/Joshua Lott

Rick Simonson of Nokia Oyj speaks during the Reuters Global Technology, Media and Telecom Summit at the Thomson Reuters headquarters in New York City May 19, 2008.

Credit: Reuters/Joshua Lott

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NEW YORK (Reuters) - Nokia (NOK1V.HE)(NOK.N), the world's leading mobile phone maker, does not expect to start to see returns from its investment in Internet services until 2010, Chief Financial Officer Rick Simonson said on Monday.

Nokia invested "hundreds of millions of euros" in services such as mobile music and video downloads in 2007 with an aim to gain a competitive edge against rivals but it warned that it does not expect see a big pay-back any time soon.

"We're going to continue to invest at that rate or more as we are in investment mode in 2008 and 2009. We look for 2010 to start to see where you go from investment mode ... to getting more out than you're putting in," Simonson told the Reuters Global Technology, Media and Telecoms Summit in New York.

Services represented only about 84 million euro revenue ($130 million) for Nokia in the first quarter out of total company net sales of 12.66 billion euro.

"We've got to get somewhere into the billions in terms of top line revenue to make this relevant," Simonson said, referring to the services business.

Asked about Nokia's appetite for acquisitions, Simonson declined to give specific plans but said that software and services was where the company was focused as it already has a strong mobile devices business.

The executive also said Nokia, which leads the global phone market with a 40 percent share, was looking to profitably improve market share on a phone volume and value basis in the global phone market in 2008.

U.S. BOOST IN A YEAR

But while the company has done well globally, its market share in North America dropped to 9 percent at the end of 2007, a year when U.S. market leader Motorola Inc MOT.N struggled hugely.

Nokia hopes it can reverse its U.S. fortunes with custom-designed phones for U.S. operators such as AT&T Inc (T.N) and Verizon Wireless, owned by Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).

"We have to have double-digit market share to be relevant in the U.S.," Simonson said, adding that he expects this to happen by the second quarter of 2009.

"Anything short of that would not be a success," he said.

While Simonson declined to give an update on how economic conditions were impacting consumer demand, he said growth was strong for high-end phones and for low-end phones used by first-time subscribers in emerging markets.

Simonson also said high-end phones that support everything from e-mail and Web surfing to music and video were growing faster than overall phone unit sales, which Nokia has forecast to grow at a 10 percent rate from 2007.

He said the smartphone market would grow about 50 percent to up to 180 million units in 2008, from 120 million in 2007.

"Maybe its 50 or 55 or 45 percent. Who knows ... That market is growing at a fast pace compared to the overall market. I don't see that changing," he said.

Nokia competes with Apple Inc (AAPL.O) and Research in Motion RIM.TO as well as Samsung Electronics Co Ltd (005930.KS) and LG Electronics (066570.KS) in high-end phones.

Noting that rivals Motorola and LG Sony Ericsson have global market shares below 10 percent, Simonson said it was "very difficult" for them to compete at those levels.

"To play globally and to play across the various markets, I think it's difficult and unsustainable if you're not at this 15 percent and above scale," he said, noting that scale helps in sales and marketing as well as research and development.

Nokia's U.S. shares were up 2.9 percent to $30.01 in afternoon trading on the New York Stock Exchange.

(For summit blog: summitnotebook.reuters.com/)

(Additional reporting by Ritsuko Ando and Tarmo Virki in Paris; editing by Tim Dobbyn, Phil Berlowitz)

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