Google (NASDAQ:GOOG) recently stopped selling Nexus One smartphones through its U.S. online store. In the smartphone market, Google competes primarily with Apple (NASDAQ:AAPL), Research in Motion (NASDAQ:RIMM) and Motorola (NYSE:MOT).
Google launched the Nexus One to great fanfare last January. Going forward, Nexus One phones will still be available in U.S. retail stores and internationally through partners like Vodafone.
We expect Google to sell only around one million Nexus Ones worldwide in 2010. This implies that the smartphone business now constitutes less than 1% of the $683 Trefis price estimate for Google’s stock. Our analysis follows below.
Why Did Nexus One Fail?
Web-only launch: The Nexus One was initially available only through Google’s online store. We believe this was a mistake because most consumers like to touch and feel a phone before buying it.
Not enough marketing: Google didn’t spend much to advertise Nexus One.
No U.S. telecom partnerships: Apple, RIM and Motorola have all partnered with telecom providers like Verizon (NYSE:VZ), AT&T (NYSE:T) and Sprint Nextel (NYSE:S) to sell smartphones with service contracts in the U.S. This has been a successful strategy because it dramatically reduces the cost of smartphones for consumers. By contrast, Google had no telecom partners and priced the Nexus One at a hefty $529, which limited its appeal.
Stock impact
We expect Google to capture about 0.08 of the the global mobile phone market in 2010, growing to 0.32% by the end of the Trefis forecast period. This translates to about one million unit sales in 2010, increasing to around 5.8 million units in 2016.
However, there could be a small downside of about 1% to our price estimate for Google’s stock if the company fails to increase its smartphone market share going forward. You can drag the trend-line in the chart below to create your own global smartphone market share forecast for Google and see how it impacts the company’s share value.
All is not lost
Google will continue to sell Nexus One phones internationally via partnerships with service providers like Vodaphone in the U.K. and KT in South Korea. Going forward, Google could boost Nexus One sales by striking similar partnerships with telecom providers in other international markets.
In the U.S., Veritzon and other telecom providers declined to distribute the Nexus One after the phone failed to catch on through Google’s direct sales channel. But Google could still partner with telecom companies and retail distributors in the future, particularly if it manages to release a smartphone that catches on with consumers.
You can see the complete $683 Trefis Price estimate for Google’s stock here.
