Nokia’s Profit Margins Expected to Head South
Nokia’s (NYSE:NOK) EBIT margins from mobile phones have consistently declined since 2007 in developed as well as emerging markets. Nokia’s stock is very sensitive to the EBIT margins in the company’s mobile phone business, given that mobile phones account for almost three-fourth of Nokia’s stock value.
Nokia competes with mobile phone makers Research in Motion (NASDAQ:RIMM), Apple (NASDAQ:AAPL), Motorola (NYSE:MOT), and Google (NASDAQ:GOOG). We currently have a Trefis price estimate of around $12.33 for Nokia’s stock, about 29% above the current market price of around around $9.55.
Below are charts showing historical and future trends for Nokia’s profit margins from mobile phones.
Mobile Phones EBIT Margin for Emerging Markets
In the past, Nokia’s Mobile Phones EBIT Margin for Emerging Markets has decreased from 23.4% in 2003 to 12.5% in 2009. In another article, we have explained how Euro depreciation, fierce competition in the smartphone market, and shift in product mix toward lower priced phones are squeezing Nokia’s margins. Nokia has been losing market share to Apple, RIM and Motorola.
The average of Trefis member forecasts for Mobile Phones EBIT Margin for Emerging Markets indicate a decrease from 10.5% in 2010 to 7.4% by the end of the Trefis forecast period, roughly in line with the baseline Trefis estimate. The member estimates imply a downside of 1% to the Trefis price estimate for Nokia’s stock.
Nokia could see an improvement in demand for its new line of smartphones running on its Symbian 3 operating system. However its R&D and SG&A expenses are expected to increase as Nokia pumps in more money to improve and make the Symbian and MeeGo operating systems more competitive.
Disagree? You can drag the forecast trend-line above to express your own view, and see the sensitivity of Nokia’s stock to Mobile Phones EBIT Margin for Emerging Markets.