20% Downside to Nokia if Share Losses in Emerging Markets Persist

+13.48%
Upside
3.54
Market
4.02
Trefis
NOK: Nokia logo
NOK
Nokia

IDC recently came out with a report on Nokia’s (NYSE:NOK) market share in India, stating that Nokia’s share of mobile phone handsets declined from 54% in 2009 to 36.3% as of second quarter of 2010. Nokia, however, has refuted such claims arguing that IDC did not count shipments from its Chennai factory [1]. India is the second most important market after China for Nokia in emerging markets.  If IDC’s claims are true, and this steep decline in market share continues, there could be a significant downside to the $12.33 Trefis price estimate for Nokia’s stock.

Potential downside to Nokia’s stock

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A few months back, we discussed how Nokia is slowly losing its dominance in the Indian mobile phone market. The IDC article not only reinforces this point, but also indicates that the market share declines are much larger than had originally been believed. Our estimates indicate that Nokia sold around 60 million mobile phones in India in 2009, out of a total of 300 million sold in emerging markets. This implies that around 20% of Nokia’s emerging market sales come from India alone, making it an important market for the firm. IDC’s report of declining sales in India suggest that Nokia’s market share in the broader emerging markets can also decline meaningfully.

We believe that Nokia’s market share in emerging markets (India, Brazil and China) will decline from 40% in 2009 to 34% by the end of the Trefis forecast period.

[trefis_forecast ticker=”NOK” driver=”0058″]

If, however, the market share declines at a faster rate to reach 20% by 2016 instead of the 34% that we currently forecast, there could a downside of 20% to the $12.33 Trefis price estimate for Nokia’s stock.

Factors behind such rapid fall

Nokia competes with Apple (NASDAQ:AAPL) and Research in Motion (NASDAQ:RIMM) in the high-end mobile phones market, and with LG, Samsung and Sony in the value mobile phone market.  However, the emergence of local players in India has posed a more challenging competitive threat to Nokia’s business. Nokia has been losing share to new Indian mobile companies such as Micromax,  Spice Mobile and Karbonn Mobiles because it neglected popular trends in the Indian mobile phone market. Nokia has also been slow to bring out popular features such as dual-SIM card phones and social networking apps. At the same time, its competitors have invested heavily in advertising campaigns that have helped them grow rapidly.

Not enough dual SIM cards: In the past few years, many Indian consumers have started to maintain multiple mobile accounts. The reasons include varying plan costs and the need to have different phone numbers for official and personal use. As a result, handsets with dual SIM card capacity have become very popular. Nokia has lagged its local competitors in bringing dual SIM card handsets to market.

Limited social networking capacity: Indian teenagers have been early and enthusiastic adopters of mobile social networking. Nokia was late in entering the social networking arena. By contrast, rival Samsung increased its Indian market share largely due to the success of its popular Corby phones, which feature extensive social networking functionality.

You can see the complete $12.33 Trefis Price estimate for Nokia’s stock here.

Notes:
  1. According to Times Of India, citing IDC as source []