Nokia Explores Opportunities In Tablet Market With N1

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Nokia (NYSE:NOK) surprised the market this week and announced a return to the consumer devices business with its new tablet, the Nokia N1. The networking major introduced its latest offering at the Slush 2014 conference in Finland. The Nokia N1, designed and built by Nokia Technologies, will be manufactured by Taiwanese contract manufacturer Foxconn and is likely to be priced competitively at around $249. Running the Android Lollipop operating system, its hardware features and specifications are interestingly very similar to Apple’s iPad Mini 3, which suggests that the company is trying to compete with the global tablet market leader but offering its product at a significantly cheaper price. However, Nokia plans to launch its product only in China initially (in February 2015) and later introduce it in Russia and select European countries. It hasn’t announced any plans to introduce the product in the U.S. any time soon. [1] [2]

Considering that Nokia can enter the smartphone market only in 2016 because of a clause in its deal with Microsoft, its decision to launch a tablet by licensing its brand and industrial design is a good way to re-enter the consumer business. However, it also raises a couple of important questions. With the global tablet market showing signs of slowing down, is it prudent to launch a tablet? How tactical is the plan to launch the tablet initially only in China? In this article, we talk about these aspects of the Nokia N1 and also discuss how it compares with the existing products in the market.

Our $8 price estimate for Nokia is about in line with the current market price.

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Global Tablet Market Trends

Global tablet shipments stood at 53.8 million units by the end of third quarter ending October 2014, growing less than 12% year-over-year (y-o-y) compared to a growth of about 52% in 2013. This marked slowdown in the growth of tablet shipments is a result of increasing availability of large-screen smartphones and “phablets,” which essentially are a mix of phones and tablets. The fact that users tend to share tablets among family and friends, unlike smartphones which are more personalized, is another contributing factor for sluggish growth in demand. [3] [4]

Innovation And Price Driving Tablet Sales

A comprehensive analysis of the aforementioned tablet shipments data reveals that the market for low-cost tablets is growing faster than premium ones and that growth is primarily concentrated in emerging markets such as China and India. The former is further validated from the fact that iPad sales have consistently declined for three straight quarters this year. [5] While it would be premature to say anything about worldwide tablet sales in the future and customer preference in general considering that global tablet penetration is still very low, current trends suggest a shift towards newer brands which offer innovative features at competitive prices.

The rapid rise of Chinese electronics maker Xiaomi in its domestic tablet market this year is a case in point. Xiaomi has managed to increase its share to 7.6% in China’s tablet market within a quarter of its tablet’s launch (Xiaomi Mi Pad), competing against heavyweights such as Apple (29%), Samsung (8.2%) and Lenovo. [6] There is ample opportunity for Nokia if the company finds the right balance between product features, price and the target market.

Nokia N1’s Opportunity In China

The Nokia N1 is a premium quality 7.9 inch Android tablet with a single piece anodized aluminium design and a layer of Corning’s (NYSE:GLW) Gorilla Glass 3, much like Apple’s iPad Mini 3. It is both thinner and lighter than the iPad Mini as well as Xiaomi’s Mi Pad. In terms of technical specifications, the N1 offers a 64-bit Intel processor clocked at 2.3 GHz with 2 GB of RAM, 32 GB onboard storage, IPS LCD display, 8-megapixel rear and 5-megapixel front cameras. This is on par with the best in the current market. It also has a few new features such as the reversible Type-C USB connector and Nokia’s new Android app- Z Launcher. [7]

With comparable, if not better, hardware specifications and features than other top-selling high-end tablets, the Nokia N1 establishes itself in the premium tablet segment. However, it scores over the others in price. Compared to $399 for the iPad Mini 3, the Nokia N1 is expected to retail at $249, before taxes. This price point makes it a worthy competitor to Xiaomi’s top selling Mi Pad in the Chinese market, which is available at a starting price of $243 for the 16 GB model.

Other than branded tablets, there is a surge of small Chinese companies selling white-label tablets in China which retail for around $100. This is demonstrated by the fact that 50% of tablet shipments in China in the second quarter this year represented companies which each have a share of less than 1% of the market. While it is not possible to compare the innumerable white-label tablets to the premium and branded products, they will certainly add to the competition for Nokia in China. Total tablet shipments in China in the first five months of this year stood at about 11.1 million, up about 16% y-o-y. [8]

We believe Nokia will be more focused on the branded tablet market for now. However, if it offers innovative financing options as well as a convenient shopping experience, Nokia might be able to lure some customers away from the white-label offerings as well.

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Notes:
  1. Nokia N1 Website []
  2. Nokia N1: Nokia bursts back onto the scene with an all-aluminum Android 5.0 tablet, BGR.com, Nov 18 2014 []
  3. Worldwide Tablet Shipments Miss Targets as First Quarter Experiences Single-Digit Growth, IDC, May 1 2014 []
  4. Apple’s Lead in Tablet Market Share Shrinks as Consumer Satisfaction Slips Slightly, IDC, Oct 30 2014 []
  5. Apple Sells 12.3 Million iPads in Q4 2014, Sales Down for Third Quarter in a Row, MacRumors.com, Oct 20 2014 []
  6. Xiaomi rises fast in China’s tablet market, but Apple still top dog, PCWorld, Nov 11 2014 []
  7. Nokia’s first device after Microsoft is an iPad mini clone that runs Android, The Verge, Nov 18 2014 []
  8. IPad’s China Market Share Plunges as Domestic Tablet Makers gain, Bloomberg, Aug 21 2013 []