Nokia's new gadget targets youth market

The Nokia 5510

The new Nokia 5510 phones include a digital music player, stereo FM radio, games and enhanced messaging capabilities. Turned on their sides, the phones have a full keyboard and 64MB of memory, which can store up to two hours of music.

The phones will initially be available in Europe, Africa and the Asia-Pacific region, the company said.

"Every now and then it is crucial that you turn your thinking around," Nokia Executive Vice President Anssi Vanjoki said in a release.

"This new concept reflects not only a change in our perspective, but also a more fundamental transition that our industry is going through. Phones are no longer only voice and SMS (Short Messaging Service) devices, but are increasingly functioning as platforms for other services, such as entertainment," Vanjoki said.

The phones, which are expected to sell for about $362, come with software and connector cables that allow customers to transfer music files from CDs or computer files onto the phones. They also offer e-mail using the Wireless Application Protocol and are expected to begin shipping in the fourth quarter.

"We wanted to provide a fresh new design for the 5510, which represents Nokia's first 'entertainment' phone," said a company representative.

Nokia also announced a deal with China Mobile to supply a GPRS (General Packet Radio Service) network. The deal will help China Mobile's network expand to cover all 31 Chinese provinces and bring its capacity to more than 2 million subscribers.

Nokia has already begun deliveries, and the network is expected to be operational during the fourth quarter. Financial terms of the deal were not released.

Nokia's news comes a day after competitor Motorola lowered guidance for its fourth quarter and announced more layoffs, an indicator that Nokia may be thriving at its rival's expense, analysts said.

Motorola lowered its 2001 estimates for industrywide handset shipments to 380 million to 400 million from 400 million to 425 million units. But executives said they expect the market to pick up again in 2002.

Motorola also posted better-than-expected results for its handset unit, something that could be a "harbinger of good news" for Nokia, said Bernstein analyst Paul Sagawa. Nokia is to report its third-quarter results next week.

A declining economy and inventory issues have hammered the global telecom market, but "confidence in Nokia's results is much higher than its peer group," Lehman Brothers analyst Tim Luke said in a research note.

Luke added that the Sept. 11 terrorist attacks could depress results for the quarter, since September is usually the strongest month in the quarter. And looking ahead, he "sees negative implications for consumer confidence and the fourth-quarter holiday season, particularly given such little clarity as to the mobile operators' strategy for Christmas promotional activity."

But Nokia said a day after the U.S. attacks that it did expect to meet its third-quarter earnings estimates, and that U.S. demand was showing signs of improvement.

CNET Singapore's Aloysius Choong contributed to this report.