Although it still holds a commanding market lead, Nokia's rivals benefited when it took its eyes off the ball. But the corporation believes it has the confidence to get back on track, writes Karlin Lillington, in Helsinki.
Analysts and journalists gathered in an old cable factory on the waterfront in the Finnish capital this week to hear mobile phone giant Nokia explain why it had surprisingly lost significant market share in the past quarter and, more importantly, what it was going to do about it.
The setting was appropriate - the converted concrete building was Nokia in its distant past, when it made cables and rubber goods, back when handsets and downloadable mobile ringtones were unimaginable commodities.
For those who sometimes accuse the company of arrogance, the factory was a reminder of humbler beginnings.
And, of course, of growth and promise - something that the company was eager to emphasise as it offered new handsets and accessories, and new networking and operator deals, as evidence of its good intentions.
After a major review of its products and strategy, Nokia trimmed its portfolio in some areas and has increased it in others, finally introducing the entry level and mid-range clamshell handset models that consumers have snapped up from other operators, to the detriment of Nokia's market share.
Nokia also has beefed up its overall mid-range offerings, an area that analysts had considered to be weak.
And, the company's executives repeatedly emphasised, a newly welcoming approach to co-branding phones with operators.
A previous neglect of these three areas is the reason analysts Gartner believe the Finnish company has seen market share slide since 2003, from a high of 34.6 per cent to a low of 28.9 per cent last quarter.
While Nokia still holds a commanding market share lead, rivals benefited from Nokia's eye slipping off the ball.
Gartner said that Motorola, in the number two position, upped its market share to 16.4 per cent from 14.7 per cent.
South Korea's Samsung Electronics rose to 12.5 per cent from 10.8 per cent.
Gartner measures sales to consumers rather than to retailers and is widely considered to have the most accurate sales figures in the industry.
"I think the product portfolio, our ability to execute, and our relationship with the customer give us the confidence to get back on track," said Mr Jorma Ollila, Nokia chairman and chief executive.
The company introduced five new handset models, including the two new clamshells, a swivel-screen business model, and a mid-range 3G handset, which Nokia claims is the smallest on the market.
The 3G handset also introduces a megapixel quality camera - at 1.3 megapixels, the lens is of the same quality as entry-level digital cameras. Nokia said it would be introducing cameras of this quality into more handsets as well.
Other new products include a foldable keyboard with wireless Bluetooth connectivity. By Christmas, the company also promised to release 20 further N-Gage games and a revamped N-Gage handset - designed as a combination mobile phone and gaming console.
While consumers liked the design of the handset, gamers complained about its ease of use and the lack of games on the handsets, whose sales were well below Nokia's expectations, executives admitted.
"We had high volumes [in sales\], but not in line with our expectations," said Mr Matti Alahuhta, executive vice-president, Nokia.
Nokia is cheered by rising demand this year for mobiles - the company shipped more handsets in the first quarter of 2004 than in the same period in 2003 - and the fact that only 25 per cent of the world uses a mobile handset.
Subscriber growth already runs at a phenomenal 800,000 per day, with Mr Ollila predicting the current market of 1.3 billion mobile users would hit two billion by 2007. The second billion would be reached in half the time it took to reach the first billion, he said.
Nokia is also optimistic about smartphone growth, estimating that it will ship 20 million units this year. Smartphones combine a handset and the functions of a handheld computer.
"While it is a small market today, it is clear it will be one of the fastest-growing markets in coming years," said Mr Alahuhta.
Nokia also emphasised that its networking and services divisions are rapidly growing and return a higher profit than the fickle handset market.
Still, Nokia, a cornerstone of the entire Finnish economy, has been stung by its loss of handset market share after enjoying a reputation throughout the last decade of offering innovative handset designs coupled with easy to use menus.
"Naturally, it was a major disappointment, after a period of many years when we doubled our share in a few years," said Mr Juha Putkiranta, senior vice-president, imaging and multimedia.
Nonetheless the company is placing its bets on some ideas that, for now, seem widely futuristic.
The nearest of these to an actual consumer offering is a television phone with an integrated TV receiver, which exists in a beta prototype and is being "trialed" in Germany and Finland.
The company is adamant that consumer demand is there for a tiny-screen TV, particularly for sports and news, and expects a wider consumer offering in 2005.
The company is also experimenting with a Bluetooth headset that runs on a tiny methanol fuel cell.
More unusual are plans for three dimensional, holographic multimedia with surround-sound, for which there are no delivery timelines.
Future consumers will have to decide on the viability of such ideas.
In the meantime, Nokia will continue at the difficult game of anticipating what consumers want before they realise it themselves.
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