Nokia (NYSE:NOK) hasn’t given up on Symbian just yet. While it is betting on Microsoft’s (NASDAQ:MSFT) Windows Phone for its Lumia brand of high-end smartphones, its legacy platforms like Symbian and S40 that still drive most of the feature phone volumes in emerging markets. However, with the proliferation of cheap Google (NASDAQ:GOOG) Android based quasi-smartphones, Nokia is increasingly feeling the pinch of rising competition and declining prices for its older models.
In a bid to combat the pricing pressure and defend its market share in emerging markets, the Finnish handset maker has bolstered its Asha portfolio of handsets with two new touchscreen phones, the Asha 308 and the Asha 309.  The new low-end products not only offer some features that are commonly found in more expensive smartphones but, at $99, are also its cheapest fully-touch phones, so far. With the extended Asha line, Nokia will be looking to slow the decline of its Symbian sales so as to give Lumia enough time in the market to gain momentum and make the transition less painful.
Our price estimate for Nokia’s stock is $4.50, more than 65% ahead of the market price.
Nokia tries to address plummeting sales
The most valuable market for Nokia has historically been the emerging markets where, although its market share has been declining fast, it has mostly remained ahead of the rest in terms of total units shipped. By our estimates, Nokia’s emerging markets division accounts for more than 20% of the company’s value, with cash accounting for another 35%.
The first quarter of this year, however, saw Samsung race ahead to become the world’s largest handset maker, breaking Nokia’s 14-year stranglehold. Nokia’s fall from the top was a result of the proliferation of cheap Android-based smartphones that have eaten into the volumes of its feature phones. Consequently, Nokia’s revenues from emerging markets in the first half of 2012 have declined 35% over the same period last year.
Until now, Nokia had been able to bring down the prices of its feature phones or enter into the dual-sim phone segment to compete and turn a small profit. But the entry of low-cost $100-$150 Android touch-based smartphones has left it with little choice but to bring the prices of its feature phones further down to drive sales.
While the company is pinning all of its hopes on the Windows Phone to rejuvenate its smartphone sales, it cannot let sales decline rapidly since it still accounts for a majority of its sales currently, especially in the emerging markets. Emerging markets accounted for almost 70% of Nokia’s handset revenues last quarter. The new full touch low-end quasi-smartphones that Nokia has launched will help it compete directly with the cheap Android rivals that are infiltrating the market, thereby decreasing the pricing pressures and slowing down the decline in sales.
Additionally, Nokia also made an important acquisition at the start of 2012 that will help bolster its emerging market prospects in the coming years. It acquired a Norway-based mobile OS developer, Smarterphone AS, whose proprietary software platform would help enrich user experience on feature phones by providing a highly advanced touch-based functionality on moderate hardware. (see Nokia Buys Smarterphone AS; Positive for Emerging Market Penetration) This will help Nokia replace the old S40 software on its feature phones, make its low-end phones smarter, and address the huge demand for quasi-smartphones that have started making an appearance in the Chinese markets. (see Chinese Telcos Look to Boost Margins With Cheaper Smartphones)Notes:
- Nokia Unveils Two Full-Touch Asha Phones to Tap Demand in Asia, Bloomberg, September 25th, 2012 [↩]