Samsung’s Rapid Rise Could Eliminate Upside for Nokia Stock
Nokia (NYSE:NOK) has witnessed its market share evaporate over the past few years, largely due to rising competitive pressure in developed markets from Apple’s (NASDAQ:AAPL) iPhone and Research in Motion’s (NASDAQ:RIMM) Blackberry. The company must now also fend off an increasing push in emerging markets from competitor Samsung.
We estimate that emerging markets constitute about 52% of the $12.46 Trefis price estimate for Nokia stock, which stands about 20% higher than the current market price.
Nokia’s Market Share Under Pressure
Nokia’s stock value heavily depends on its emerging market operations (in countries like China, India, and Brazil) and it is critical that the company is able to sustain market share. Nokia’s share in emerging markets has decline from an 45% in 2008 to an estimated 33% in 2010. We expect these declines to moderate going forward, with Nokia’s market share ultimately reaching 29% by the end of our forecast period.
Increasing Competitive Pressure Could Spell Downside to Our Nokia Price Estimate
Samsung is the second largest mobile phone player manufacturer in the world behind Nokia (based on phone sales). Although Samsung’s market share declined from around 20% in Q3 2009 to 17% in Q3 2010, Nokia’s share declined at a faster rate from 37% to 28% during the same period. [1] Comparing absolute numbers for the same period, Samsung unit sales grew at around 20%, while Nokia’s grew at only 4%.
Samsung has reportedly set its sights on surpassing Nokia’s phone sales by 2013, [2] which could trigger a sharper decline in Nokia’s market share than incorporated in our base case estimates.
Nokia is also facing higher competitive pressure from smaller players in markets like India. Nokia’s market share in India reportedly declined from 54% in 2009 to around 36% as of Q2 2010, although Nokia has disputed the calculations in the report. [3] Nokia has been losing share to new Indian mobile players such as Micromax, Spice Mobile and Karbonn Mobiles. (See our analysis on Nokia’s declining fortunes in the Indian mobile phone market).
Our base forecasts currently project a moderate decline in Nokia’s share of emerging market mobile phone sales, to 29% by the end of our forecast period. However, continued competitive pressure could spell downside to our estimates and evaporate the premium implied in our $12.46 price estimate. If Nokia’s share in emerging markets declines to 20% by the end of our forecast period, for example, it would create 15% downside to our price estimate. This scenario would bring our number in line with the current market price.
See our company breakdown and estimates for key drivers to Nokia’s stock value in the display below.
You can see the complete $12.46 Trefis Price estimate for Nokia stock here.
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