Better Quarter for Nokia, but Long-Term Issues Persist
The mobile phone market is growing at a rapid pace, and Nokia (NYSE:NOK) faces stiff competition from Samsung and Motorola Mobility (NYSE:MMI) in the featured phones (low end) category and Apple (NASDAQ:AAPL) and Research in Motion (NASDAQ:RIMM) in the smartphone (higher end) category.
Nokia recently announced its Q4 2010 earnings, in which it mentioned that its products N8, C3, C601 and C7 did decently well in the last quarter and spurred an uptick in average pricing and margins for the company. The management commented that sales could have been higher had it not faced components supply constraints during the quarter. [1]
Nokia clearly benefited from the holiday season. However, it still lost a major chunk of market share in 2010. We believe that some long-term issues still persist for Nokia, and it will need to improve upon its design and app ecosystem to catch up with the competition. We have a $11.78 price estimate for Nokia stock, which is about 10% higher than the current market price.
Competition Outpacing Nokia
In 2010, Nokia sold 453 million mobile phones in total, which represents 5% growth over 2009. However, the company still ended up losing a massive chunk of share both in emerging and developed markets. Nokia’s market share declined from 41% in 2009 to 33% in 2010 in emerging markets, and from 27% to 24% in developed markets.
Nokia was not able to take advantage of the wave of mobile phone growth in 2010. [2] The silver lining for Nokia in 2010 was that it increased its average phone pricing from 54 Euros in 2009 to 56 Euros in 2010 in emerging markets.
This increase was driven by the higher mix of smartphones, largely due to the success of N8 (See Encouraging N8 sales could signal optimistic outlook for Nokia).
Long-Term Issues Persist for Nokia
During the earnings conference call, Nokia’s CEO Stephan Elop commented on a few obstacles the company could encounter going forward: [1]
“Nokia faces some very significant challenges. The game has changed from a battle of devices to a war of ecosystems and competitive ecosystems are gaining momentum and share. The emergence of ecosystems represents the broad convergence of the mobility, computing and services industries.”
Management stressed that the company needs to improve upon its design and app ecosystem to better compete. Accordingly, Nokia has begun work on its plan to have a single platform based on the Qt framework for native application development. A single framework would save time for application developers and allow mobile phone users to experience software improvements much quicker (See Nokia Woos Developers to Juice Up App Store). However, these developments could take time and real benefits may be more weighted towards the long-term.
Drag the trend lines in the modifiable charts above to see the affect of various trends in emerging market mobile phone pricing and market share on Nokia’s stock value.
You can see the complete $11.78 Trefis Price estimate for Nokia stock here.
Notes:- See SeekingAlpha: Nokia Q4 2010 earnings conference call transcript [↩] [↩]
- According to Gartner, mobile phone market grew at the rate of 35% from Q3 2009 to Q3 2010 [↩]