Weekly Mobile Notes: Apple’s Rocky Week As Nokia Shines

by Trefis Team
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The past week saw quite a few developments in the mobile sector. Nokia (NYSE:NOK) scored a major coup by signing on China Mobile (NYSE:CHL), the world’s largest wireless carrier by subscriber base, to sell a TD-SCDMA version of the Lumia 920, starting later this month. On this news and other developments, Apple’s (NASDAQ:AAPL) stock took a big 7% tumble Wednesday – its biggest single-day loss in four years. Nokia’s joint-venture with Siemens, Nokia Siemens Networks, announced the sale of its optical networking business unit to Marlin Equity Partners as part of its ongoing restructuring that will help it cut costs and sustain operations on a standalone basis. Towards the end of the week, China Mobile said that an iPhone deal with Apple is contingent on successful negotiations of a mutual ‘benefit sharing’ agreement between the two parties. (see Apple’s China Potential Could Be Limited By A Subsidy Compromise With China Mobile)

Nokia’s China Mobile deal

Nokia’s stock received a major boost Wednesday, rising almost 13% on news that the company has entered into a deal with China Mobile to sell a version of the Lumia 920. Earlier, there were rumors in the market about the Lumia 920T for several weeks prior to the announcement but Nokia finally confirmed that it will indeed be bringing the TD-SCDMA variant of its flagship Lumia 920 smartphone, the Lumia 920T, to China Mobile before the end of the year. While Apple’s iPhone 5 will be launched on both China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA) next week, China Mobile’s huge subscriber base gives Nokia almost twice as big an addressable market for its comeback Windows Phone bid in the world’s biggest smartphone market.

This comes on the back of several reports claiming that the Lumia Windows Phone 8 smartphones are seeing impressive demand leading to sell-outs in multiple developed markets, including the U.S., Germany and Australia. A Yahoo China report goes as far as to claim that Nokia received more than 2.5 million orders for the Lumia 920 in less than a month since launch. To add perspective, this is just a tad shy of 2.9 million sales that Nokia recorded for the entire Lumia portfolio during the previous quarter. With the world’s largest subscriber base of close to 700 million and 3G penetration of only about 11%, China Mobile presents a big opportunity for Nokia to make the most of the rising Lumia popularity. (see Nokia Inches Closer To $4.50 Fair Value With China Mobile Deal)

Apple’s big fall

Despite high expectations from the ongoing holiday season, Apple’s (NASDAQ:AAPL) shares took a big tumble Wednesday, falling almost 7% by the end of the day and recording its biggest single-day loss in four years. Such a huge trading loss cannot obviously be accounted for by a single reason and multiple explanations have since emerged for the decline. While some have put it down to margin requirements for Apple positions being increased by clearing firms, others have attributed the decline to decreasing expectations about the declaration of a special dividend from Apple this year before the impending fiscal cliff. These reasons, however, have little to do with the fundamentals of Apple and don’t therefore impact our long-term view of the company from a valuation perspective.

Apple’s big fall on Wednesday however coincided with a few other important news reports that might impact its long-term competitive standing. Research firm IDC, for instance, saw Apple’s tablet market share slipping to 53.8 percent in 2012 from 56.3 percent last year in the face of rising competition from Android tablets such as Google’s Nexus 7, Amazon’s Kindle Fire and Samsung’s Galaxy Tab. Growing competition in the smartphone market from a resurgent Nokia, which announced a China Mobile deal for its flagship Lumia 920T the same day, was another big reason for the nervousness. Somewhat disconcerting was also AT&T’s announcement that it expects to sell only 26 million smartphones this year, implying a year-over-year decline in Q4 smartphone sales. Given how important iPhone has historically been to AT&T’s smartphone sales, this was seen as having a direct implication on the overall iPhone sales.

While all the above listed concerns may have cumulatively pulled down the company’s market capitalization by $35 billion in a single day, we maintain our $710 price estimate for Apple’s stock as our model takes into account the impact of the growing competition on Apple’s margins both on the iPhone and the iPad front. As for the impact of the recent developments on Apple’s iDevice sales, we see that our estimates might actually be a tad conservative. (see Why Apple’s Fall Was Exaggerated; Sticking With $710 Estimate)

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