Nokia Looks To Stem Market Share Decline With More Affordable Lumias, 620 And 520

by Trefis Team
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With the high-end Lumia smartphones (920 and 820) off to a good start, Nokia (NYSE:NOK) is now looking to push through lower tiers and gain a wider audience for Microsoft’s (NASDAQ:MSFT) Windows Phone platform. The Finnish handset maker unveiled two new Lumias, Lumia 720 and Lumia 520, at the Mobile World Congress Monday, expanding the latest Windows Phone 8’s reach to new price points. While the Lumia 720 is a mid-range smartphone and fills the gap between the existing Lumia 820 and 620 models, the Lumia 520 is priced at less than $200 and positions Nokia well against the onslaught of cheap low-end Android smartphones in the emerging markets.

Both new Lumias will start rolling out in a few Asian markets in Q1 2013 before a broader expansion takes them to the key markets of China, India and Europe in Q2. In China, Nokia said that it will launch both the 720 and the 520 on China Mobile, further strengthening its relationship with the largest carrier in the world. That Nokia is launching its low- to mid-range Windows Phones before Samsung or LG do the same, and before BlackBerry gets to launch its entry-level BB10 handsets next year, gives it a significant head start over rivals in emerging economies. However, with cheap Android smartphones flooding the market and pushing prices down to sub-$150 levels, Nokia still has some way to go before Windows Phone 8 reaches the very low-end of the market. Our price estimate for Nokia’s stock is $5, about 35% ahead of the market price.

See our complete analysis for Nokia stock here

Nokia tries To Address Plummeting Sales

The most valuable market for Nokia’s mobile business 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 close to 15% of the company’s value with cash accounting for another 30%.

However, the first quarter of last year 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 not only eaten into the volumes of its low-end phones but also caused prices to fall. Consequently, Nokia’s revenues from emerging markets in 2012 fell close to 36%, and its market share by more than 450 basis points over the previous year.

Until recently, Nokia was able to bring down the prices of its feature phones or enter into the dual-sim phone segment to compete and earn a small profit. But the entry of low-cost $100-$150 Android touch-based smartphones has put pressure on margins, causing Nokia to tweak its S40-based handsets to resemble smartphones more and defend its price points better. This strategy seems to have worked well in the near term with the launch of fully-touch Asha phones seeing Q3 and Q4 combined sales of almost 16 million units and q-o-q growth of about 43% last quarter.

But growing competition from low-end Android smartphones means Nokia eventually needed to come out with similar-priced Windows Phones aimed at its traditional strongholds in emerging markets. Emerging markets accounted for more than 67% of Nokia’s handset revenues last year, and with the market for basic feature phones shrinking, Nokia will be looking to the Lumia 620 and 520 smartphones to help arrest the market share slide in these markets.

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