Entrepreneur Fredrik Blomkvist says his new mobile phone is the best he's ever owned. It has a speakerphone, a large color screen, a camera and Microsoft Corp software that lets him answer e-mails and consult agendas stored on his computer.
"This is the phone I've been waiting for," said the 37-year-old, who just opened a restaurant in Stockholm. "This is the device of the future."
The phone, which had people lining up on sidewalks when it went on sale in Sweden last month, wasn't made by Nokia Oyj, Motorola Inc or any of their biggest competitors. It was built by High Tech Computer Corp (
High Tech is one of a new breed of mobile-phone makers, many of which started out designing, testing and packaging handsets for industry leaders, that now are challenging Nokia and its rivals.
Called original-design manufacturers, the upstarts may have as much as 40 percent of the US$100 billion cellular-phone market by 2005, four times their share today, Stockholm-based market researcher Northstream says.
Contracts with such service providers as AT&T Wireless Services Inc in the US, Orange SA and Deutsche Telekom AG in Europe and the Philippines's Smart Communications Inc could cripple efforts to revive sales growth by the established phone makers, whose shares are floundering at three-year lows.
"It is clearly a potential threat," said Richard Champion, who helps oversee US$4.7 billion including Nokia shares at Pavilion Asset Management in London.
"There's a battle between operators and manufacturers going on given the market dominance of Nokia," he said.
Mobile-phone makers worldwide are emerging from the industry's first slump. Nokia's sales fell for the first time since 1992 last year. Motorola cut its sales and profit forecasts for this year last month.
The top five mobile-phone makers have lost about US$220 billion in market value combined since 2000. Samsung Electronics Co, ranked No. 3, is the only one of them whose stock has risen.
Small and independent, original design manufacturers say they can react more quickly to customers' needs than bigger rivals, and at lower cost. Their ranks include AlphaCell, a unit of Israeli software producer Emblaze Systems Ltd, BenQ Corp (
"When we approach the operator, we tell him that this is the platform, we'll do whatever you wish," AlphaCell chief executive officer Avner Mor said in the single-floor office that houses his 80 employees in the Tel Aviv suburb of Ra'anana.
"We'll add applications, we'll add hot keys. We will change the icon, we will change the language, we will change the text. You'll have a full reflection of your brand on the handset,'' he said.
Flexibility like that is key for operators trying to induce customers to spend money sending photos, video clips and e-mails on their phones. After paying more than US$100 billion for licenses to offer faster services, phone companies need to make the most of the services they offer.
In developing the Qtek phone with Microsoft and High Tech, TeliaSonera Oyj, the Nordic region's largest phone operator, had 1,000 business customers test a version for three months. It found that access to e-mail and calendar functions were a top priority.
"For us it doesn't matter who made the phone, that's not our business," spokesman Bengt Olsson said. "It had to be simple and quick to install. With Microsoft, you get the absolute advantage that you have the same menu as the one you're faced with at work."
The Qtek 7070 sells for 5,500 Swedish kronor (US$685), about the same as for a Nokia Communicator. The Qtek 1010, which looks more like an organizer with a larger screen, sells for 6,600 kronor. TeliaSonera wouldn't say how many it has sold.
Nokia CEO Jorma Ollila says he isn't fazed. Original-design manu-facturers are "basically too small to compete," he told investors at a June 11 briefing in Helsinki.
Microsoft doesn't scare him either: "If we look at the largest global software player with a PC legacy, clearly that software player lacks the experience, with the inevitable outcome," the 52-year-old Finn said.
The primary market where the Illinois-based Motorola has seen competition from original-design manufacturers is in China, said spokesman Alan Buddendeck.
For Sony Ericsson Mobile Communications Ltd, which has been unprofitable since it was formed in October 2001, they are complementary, taking responsibility for some products.
"In theory, they may become a threat in the future," said spokesman Ted Kanno.
Founded in 1997, High Tech Computer makes the XDA, a pocket organizer with an integrated phone, for MMO2 Plc in the UK, and a similar device for Deutsche Tele-kom's T-Mobile International AG unit. It also produces Orange's SPV, which was the first phone to use Microsoft's Smartphone software based on the Windows operating system.
Marketing director Martin Liu says the company can compete with bigger rivals because it can tailor-make the phones.
"A branded company will sell the same device to every client," Liu said in a telephone interview. "They can't customize for operators."
It became easier to enter the market after Texas Instruments Inc, the world's biggest maker of semiconductors for mobile phones, Motorola and Sweden's Ericsson AB started licensing the technology needed to build the brains of the handsets.
"Nowadays, anyone can become a mobile-phone maker," said Per Lindberg, an analyst at Dresdner Kleinwort Wasserstein in London.
"The technology is available for everyone." he said.
The rise of original-design manu-facturers has allowed Microsoft to enter the equation, because most newcomers aren't tied to using soft-ware developed by their own engineers or Symbian Ltd, a venture whose owners include Nokia, Moto-rola and Samsung.
"Nokia owns many customers and the operators want to change that," said Peter Wissinger, who heads Microsoft's European mobile-phone unit, from Stockholm.
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