Nokia (NYSE:NOK), in its recent press release, has revised its historical mobile phone market share down based on new information that suggests Nokia is increasingly competing with unlicensed and illegal (“gray market”) mobile phone vendors in emerging markets (particularly in Asia). Below we highlight how further market share losses attributable to gray market vendors could negatively impact our estimate for Nokia’s stock by about 8%.
Downward Revision of Nokia Market Share
Nokia lowered its market share figure for 2009 from 38% (claimed in its previous report) to 34%. We have updated our analysis of Nokia to reflect this and the change has resulted in a slight decrease of the Trefis price estimate for Nokia’s stock from $25.96 to $25.85. Gray market vendors are a particular concern for Nokia since the company’s emerging markets business constitutes around 71% of Nokia’s stock, meaning that the loss of Nokia market share in emerging markets can have a significant impact on the company’s stock.
Growth of Chinese Gray Market Was 44% Last Year
According to an iSuppli report, gray market mobile phone shipments in China grew from around 101 million in 2008 to around 145 million in 2009. This constitutes around 19% of all mobile phones sold in emerging markets (China, India, Brazil) in 2009. Low cost gray market phones will make it harder for Nokia, which is already losing market share, to compete in emerging markets.
Nokia Already Losing Market Share in Emerging Markets
We have estimated that Nokia’s share in emerging markets was around 40% in 2009 and could decline to 37% by the end of Trefis forecast period, led by increasing competition from Samsung, LG, Apple (NASDAQ:AAPL) and Research in Motion (NASDAQ:RIMM).
Further Loss of 4% Share Would Mean $2 Downside to Nokia’s Stock
If the gray market in China and other Asian markets continue to grow rapidly, this could lead to a substantial downside to Nokia’s stock price. If Nokia were to lose a further 4% share to the gray market and reach 33% share by the end of Trefis forecast period instead of 37% as we have estimated, this will lead to a downside of $2 (8%) for the $26 Trefis price estimate for Nokia’s stock.
You can modify our forecasts above to see how Nokia’s stock would be impacted if its market share were to decline at a faster rate than we forecast.
For additional analysis and forecasts, here is our complete model for Nokia’s stock.
