The world's top cellphone maker Nokia said on Monday it would start to make laptops, entering a fiercely competitive but fast-growing market with a netbook running Microsoft's Windows operating system.
Nokia had earlier this year said it was considering entering the laptop industry, crossing the border between two converging industries in the opposite direction to Apple, which entered the phone industry in 2007 with the iPhone.
Nokia has seen its profit margins drop over the last quarters as handset demand has slumped, and analysts have worried that entering the PC industry, where margins are traditionally razor-thin, could hurt Nokia's profits further.
We are fully aware what has the margin level been in the PC world. We have gone into this with our eyes wide open, Kai Oistamo, the head of Nokia's phone unit, told Reuters.
There's really an opportunity to bring fresh perspective to the PC world, he said, adding that Nokia would introduce extended battery life and continuous connectivity.
Nokia has produced PCs before, but divested the unit in 1991 when it started to focus on the mobile phone industry.
But Nokia's first netbook, the Nokia Booklet 3G, will use Microsoft's Windows software and Intel's Atom processor to offer up to 12 hours of battery life while weighing 1.25 kilograms. Netbooks are low-cost laptops optimised for surfing the Internet and performing other basic functions. Pioneered by Asustek with the hit Eee PC in 2007, netbooks have since been rolled out by other brands such as HP and Dell.
The question is: How will Nokia differentiate? This is already a crowded market. If they manage to differentiate it's going to give them competitive advantage, said Gartner analyst Carolina Milanesi.
Research firm IDC expects netbook shipments this year to grow more than 127 percent from 2008 to over 26 million units, outperforming the overall PC market that is expected to remain flat and a phone market which is shrinking some 10 percent.
Nokia will be hoping that its brand and knowledge of cellular channels will play to its strengths as it addresses this crowded, cut-throat segment, said Ben Wood, director of research at CCS Insight.
At present we see Nokia's foray into the netbook market as a niche exercise in the context of its broader business.
Nokia's choice of Windows software surprised some analysts who had expected the company to use Linux in its first laptop.
Analyst Neil Mawston from Strategy Analytics said the technology choices were a good win for the U.S. companies.
We believe ARM and Symbian are among the main losers from the Nokia Booklet announcement, he said.
Shares in ARM were 0.2 percent lower at 1400 GMT, underperforming slightly firmer DJ Stoxx European technology shares index. Shares in Nokia were 1.6 percent stronger at 8.91 euros, while Microsoft was 0.6 percent firmer.
Nokia said it would unveil detailed specifications, market availability and pricing of its new device on Sept 2.
A source close to Nokia said the new netbook would use the upcoming Windows 7 operating system. Microsoft says a stripped-down version of Windows 7 will be introduced to netbooks the same time as its general release on October 22.
Local media reports in Taiwan have said that Compal, the world's No. 2 contract laptop PC maker, has pitched netbook models to Nokia, but there has been no official confirmation from either side.
Nokia declined to comment on the manufacturer it uses.
Most of the world's top electronics brands typically do their own design work, but outsource the manufacturing process to contract manufacturers such as Compal and its larger rival Quanta.
(Additional reporting by Kelvin Soh in Taipei;Editing by Rupert Winchester and Lin Noueihed)