Nokia’s (NYSE:NOK) market share in the smartphone segment, where it competes primarily with Apple (NASDAQ:AAPL) and Research in Motion (NASDAQ:RIMM), inched up to 40% in the past quarter from 35% in Q3 of 2009. The increase in share is attributable in part to Nokia’s strong performance in Europe and a better smartphone portfolio. We believe Europe can help Nokia offset declines in US market share and could have a positive impact on Nokia’s stock.
Below we explain the significance of the mobile phone business for Nokia, why we expect its market share to decline in developed markets (US, Canada, UK, France, Germany, etc.) and how strong European demand for smartphones could help Nokia limit its market share declines in the future.
Mobile phones constitute 90% of Nokia’s stock
Nokia, the largest mobile phone manufacturer globally, makes money by selling mobile phones to retailers and mobile phone operators like Verizon (NYSE:VZ), AT&T (NYSE:T) and Vodafone. We estimate that the company’s mobile phone business constitutes 90% of the $26 Trefis price estimate (versus market of $13) for Nokia’s stock.
Nokia’s developed markets share to decline to 23%
We believe that Nokia has continuously lost share in North America because its products have not matched the taste and preferences of US consumers. Another issue is that Nokia has primarily offered GSM-based phones which are incompatible with the CDMA communication standard prevalent in about half the US market, including the networks of Verizon and Sprint.
Nokia faces stiff competition from Apple, RIM, Motorola, Samsung, Sony Ericsson and LG. We expect Nokia’s share in Developed Markets to decline from about 27% in 2009 to about 23% by the end of the Trefis forecast period due to competition, especially in the US market.
Smartphone demand in Europe can offset US declines in the future
Nokia has historically had a strong foothold in the European market. Nokia phones in the E-Series category such as the E-63, E-71 and E-72 are amongst the most popular smartphones in Europe. The company shipped a total of 6.1 million E-Series devices worldwide during the fourth quarter of 2009, up 38% from the previous quarter.
E-Series net sales in Europe grew 41% on a sequential basis during the fourth quarter. If Nokia’s European business were to grow at this rate in the future, it can help Nokia offset ever declining share within the US mobile phone market.
You can modify our Nokia developed markets share forecast above to see how Nokia’s stock would be impacted if its market share in developed markets were to decrease less than we have forecast as a result of strong Nokia smartphone sales in Europe.
