Nokia's warning is wake-up call for rivals

By Georgina Prodhan - Analysis

LONDON (Reuters) - Nokia (NOK1V.HE) blamed price-cutting by rivals for its loss of market share this quarter but its warning may be a sign that profitable growth at the rates the industry has been enjoying is nearing its limit.

Coming at the end of a week in which the world's two top wireless chip makers said they were seeing slowing demand, the statement from Nokia, the world's biggest cellphone maker, sent out waves of alarm on Friday to investors primed to flee at the first sign of trouble.

Although most analysts agreed the market reaction was overdone -- Nokia shares fell to their lowest level in nearly three years -- there was bad news for the wider industry in the company's short statement and later conference call.

As well as the weaker consumer confidence in several markets that Nokia cited, echoing comments from Qualcomm (QCOM.O) and Texas Instruments (TXN.N), Nokia said it was facing tougher competition in entry markets, its powerhouse in recent years.

"It took time for Nokia to feel the pain because they are in a better place. Motorola (MOT.N), Sony Ericsson (6758.T)(ERICb.ST) and LG (066570.KS) already started feeling it in Q1 and Q2," said Gartner analyst Carolina Milanesi.

"I think the bottom line is if that if even Nokia is feeling the pain then the market is really in trouble," added Milanesi, who is chief handsets analyst with the research firm.

Nokia said it was protecting its profit at the price of losing market share if necessary, saying it had made a tactical decision not to be drawn into a price war.

But several sources told Reuters that rivals such as Samsung (005930.KS), Sony Ericsson and LG as well as a host of smaller handset makers had likely been responding to price cuts from Nokia, backed by the 40 percent of the market it commands.  Continued...