Slowdown dims the sparkle of northern star of mobile world

Nokia's global headquarters is a spotless, minimalist Scandinavian dream of polished wood, steel and soaring windows overlooking one of Helsinki's meandering harbour inlets. Meant to be as buoyed by light as a midsummer evening in these extreme Northern latitudes, the graceful structure is instead shrouded in grey June drizzle and buffeted by a cold wind.

The effect on this day is rather dour, not helped by huge paintings of austere autumnal brown Finnish landscapes hung on pale grey walls, but one can see how glorious the sum of the parts must be on a bright and sunny day. And so it goes with Nokia, the mobile phone manufacturer officially listed in Finnish guidebooks as one of the 10 things Finns are most proud of, along with saunas and Mika Hakkinen. Last week, the sun did not shine for the world's largest handset manufacturer, which issued profit warnings and told analysts that growth this quarter had been less vigorous than predicted and would remain flatter than expected.

Once seen as invincible, Nokia dragged down the whole telecommunications sector with its bad news. But one thing the Finns know how to do well is wait out the darkness until the brightness returns. Times may be grim, and delays in the rollout of crucial next-generation telecom network technologies such as 2.5G and 3G may be worrying, but Nokia remains obstinately upbeat that coming mobile Internet applications will reinvigorate the mobile handset market.

"Despite our announcement, we do still see mobile phone growth," says Mr Tapio Hedman, Nokia's vice-president of communications. "We hold on to our estimation of the one billion mobile phone subscriber threshold being reached in the middle of next year." There are 770 million mobile phone users globally, the company says; others estimate the number at closer to 500 million.

Whatever the figure, Nokia needs that expansion to continue its own phenomenal growth, which has given it a 35 per cent share of the mobile market, according to analyst International Data Corporation. That far outpaces nearest challenger Motorola, at 13 per cent. In 2000 alone, Nokia says it sold 128.4 million mobiles, with net sales of about #31 billion (£24.4 billion). Mr Hedman says the company will aim for 40 per cent of the market this year.

But some analysts believe such growth in the current economic climate will be almost impossible to achieve. The mobile market, like the PC market, is close to saturation after aggressive sales over the past few years, they say.

Nearly seven in 10 Europeans own mobiles already. But Nokia says it sees growth potential in other countries. In the US only 43 per cent own mobiles, while in Canada the figure is 28 per cent. South Africa has under 20 per cent penetration, and China has a mere 8 per cent.

However, the Finnish giant believes the future lies in the increasing convergence of mobile phones with the Internet, a trend it thinks will push consumers to buy more sophisticated colour-screen mobiles with improved e-mail and web-browsing capability. Despite the failure of the WAP mobile Internet protocol to ignite the market, Nokia and its competitors are placing their bets on 2.5G and 3G making mobile web services more appealing.

And even as its profits announcement further deflated world telecoms market sentiment, Nokia in the same week underlined this vision of the future with the introduction of its revamped, high-end Communicator handset, a pricey, merged mobile and computing device with a keyboard, web browser, Microsoft Office programs and a colour screen.

New handsets with more memory and screen space, faster download capability, and chips that use the Bluetooth wireless networking protocol are already in the pipeline. Of 200 million handsets to be purchased this year, 180 million will have web-browsing capability. Nokia expects the number of web-enabled handsets to surpass the number of PCs with web browsers later this year.

But Nokia isn't very interested in talking about the technologies incorporated into handsets, preferring to discuss what you can do with them and what they will look like.

A whole new vocabulary surrounds this marketing ploy, a sort of Nike-isation of the mobile phone in which consumers will buy into the brand and want the latest models even though their last purchase hasn't yet worn out.

Nokia doesn't refer to "handsets" any longer; they are now "terminals", reflecting their new role as access points to mobile Net services. Nokia classifies its terminal range into categories such as "fashion", "classic", "premium" and "expression". "The mobile phone itself is evolving into a personal life management tool," Mr Hedman says. "Most consumers are not that interested in technology."

"These are personal devices, more similar to fashion and clothing [than PCs]," says Mr Ilkka Raiskinen, vice-president of mobile applications and services. So much so that their first model able to work on 2.5G (or GPRS) networks - to be released later this summer - does not belong to the "premium" or "classic" category but to the "fashion" range. Nokia figures that's exactly the market sector it wants to hook on mobile Internet services and activities; if embraced by the crowd that couldn't care less about the technology behind the phone, such services will move out of the geek realm and into the general consumer market.

High on their list is wooing consumers over to using their "terminals" to send "enhanced personal messages" - SMS or e-mail messages with attached video or music clips. Nokia also will have phones to address entertainment services such as games and music, phones with high-end web-browsing capability, and phones targeting the corporate market that can handle corporate data. All these types of phone are already well-advanced, says the company. According to Mr Christian Lindholm, director of user interfaces, it takes two to five years to develop a phone, so the company has the difficult task of envisioning the handsets needed for networks and services that don't yet exist.

Despite the company's confident predictions and eagerness to move to 40 per cent market share, Mr Hedman says Nokia, with nearly 30,000 employees worldwide, remains a practical and realistic player. "Arrogance would be our worst enemy," he smiles, noting that the Finnish national character - "straightforwardness, honesty", with a degree of some untranslatable Finnish word that he approximates as "humility" - will keep the company in line.

Whether the Finnish character is enough to withstand the rigours of the current uncertain, ever-changing telecommunications market long enough to keep Nokia in its number one slot remains to be seen. Mr Hedman shrugs: "Everyone has to learn this game anew."