Our price estimate for Nokia stands at $12.44, roughly 26% above market value. We estimate that Nokia generates about 53% of its stock value from emerging market mobile phone operations, and 18% from developed market mobile phones.
Nokia, which has seen its market share decline and expenses increase at a steep rate over the last few years, may be looking to adopting Android. Its market share has suffered in the past due to the software problems that have caused delays in bringing out new versions of its Symbian operating system and smartphones.
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We believe that if Nokia adopts Android, the company will not only reduce operating expenses that it incurs in development of new versions of Symbian, thereby boosting margins, but will also benefit from the success of Android, which has seen rapid adoption over the past year.
Nokia’s Declining Fortunes
Nokia’s market share in developed mobile phone markets (US and Europe) has declined from 30% in 2007 to 27% in 2009, and could continue to decline to around 20% by the end of Trefis forecast period.
Increased competition from Apple iOS, Research in Motion BlackBerry OS and Google Android, has hindered the ability of Nokia Symbian to establish itself in the US and Europe. Nokia’s attempts to make a comeback in the US has continually been met with software problems and operating system launch delays.
Nokia’s Symbian 3 OS was originally scheduled for launch during Q2 2010, but was ultimately pushed to Q3 2010.  Similarly, Nokia’s N8 smartphone was released in October following a delay earlier this year. More recently, the company’s E7 has been re-scheduled for launch in early 2011, instead of the original target before the end of 2010. 
The delays indicate that Nokia will be playing catch up with the rapidly changing trends of the mobile phone industry. Timely launch of the latest operating systems from competitors like Apple’s iOS 4, RIM’s BlackBerry OS 6 and Android Gingerbread will put pressure on Nokia.
With Nokia struggling to bring out new features in a timely manner, would it be a better option for Nokia to adopt Android? Below we discuss how Nokia can benefit by adopting Android, and the potential upside that it can bring to the company’s stock.
Potential Upside to Nokia Stock from Android Adoption
If Nokia adopts Android, the benefits could be two-fold. First, Nokia could stand to gain market share, as Android adoption has increased rapidly over the past year. Second, Nokia will save on R&D and SG&A expenses that it incurs on developing and maintaining different versions of Symbian.
+5% – Market Share
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Android market share has rapidly risen from 3.5% in Q3 2009 to around 26% in Q3 2010 globally, while Symbian’s share has declined from around 45% to around 37% in the same period.  Various handset makers like Motorola (NYSE:MOT) and Dell (NASDAQ:DELL) have already adopted Android.
If Nokia is able to maintain its share at 27% in the developed markets throughout the Trefis forecast period, there could be upside of 5% to our estimate for Nokia stock.
+10% – EBITDA Margin
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Nokia’s operating margins have declined at a rapid rate from around 20% in 2007 to 13% in 2009, and we expect it to continue to decline to 8% by the end of Trefis forecast period.
If Nokia can reduce Symbian R&D and SG&A expenses, its margins could also get a boost. There could be an upside of almost 10% to our estimate of Nokia stock if operating margins for developed market mobile phones remain constant at around 13% throughout the Trefis forecast period, instead of the decline that we forecast.
Together, there could be a potential gain of 15% to our estimate for Nokia stock from adoption of Android.Notes: