Nokia: Is Now The Time To Cash In?

| About: Nokia Corporation (NOK)

Nokia (NYSE:NOK) has had a rough time breaking the Apple (NASDAQ:AAPL) iPhone and Google (NASDAQ:GOOG) Android smartphone duopoly in the United States. However, the company is having better success in Asia. Below I will outline five developments that bode well for Nokia in 2013. But are they enough to warrant holding onto the stock?

Development #1

The biggest development was on December 5th when Nokia announced that it will partner with China Mobile (NYSE:CHL), the world's biggest mobile operator.

China Mobile has more than 700 million subscribers. The deal with China Mobile was a huge victory for Nokia because it gives the company a foothold in China, which is now the world's largest smartphone market. The China Mobile deal is positive because it offers Nokia a great opportunity to grow its smartphone sales.

In the second quarter of 2012, China accounted for 29% of global smartphone shipments, up from 14% a year earlier. As smartphone sales increase, more Chinese are signing up for the 3G smartphone services that China Mobile offers. China Mobile is an ideal partner for Nokia because while it is the largest mobile phone company in China, it has the lowest 3G smartphone subscriber rate among the top Chinese mobile providers. China Unicom has a 30% 3G subscriber rate and China Telecom (NYSE:CHA) has a 40% 3G subscriber rate.

China Mobile covers more than half of the Chinese mobile market, but has only been successful in penetrating 11% of its massive subscriber base as of December 31st, 2012, and that is why it plans to aggressively market the Nokia Lumia 3G smartphones.

According to mobiThinking, the combined 3G subscribers of the top three Chinese mobile operators was 152.1 million as of March 2012.

According to DigiTimes Research, China should reach 270 million 3G subscribers, and with only about a 11% 3G penetration, Nokia's revenue growth would be enormous.

Development #2

A second positive development for Nokia is that with the China Mobile deal, its key competitor Apple is at least for now locked out of the market that China Mobile controls.

China Mobile is government subsidized, and the "heavy subsidy burden" required by Apple to offer the iPhone on their network had bothered the Chinese government.

Development #3

A third positive development for Nokia is that its feature phone business, as opposed to its smartphone business, is profitable. One of the primary reasons for its success is because of the sale of its Asha line of phones. Nokia plans to increase its market share in Asia and India by catering to customers who want to be connected to a fast Web browser and have access to social networking sites. The Asha phones, which have been described as "feature handsets masquerading as low-end smartphones," meet those needs. As a result, Asha phones sales climbed 10% in the third quarter of 2012, and Asia Pacific sales jumped 5% during the same period. Investors were pleasantly surprised by the way that Nokia's new Asha 305, Asha 306 and Asha 311 models have helped Nokia to profitably raise its market share in the shrinking feature phone industry. This was reflected in Nokia's market share gains in the Philippines, Malaysia Indonesia and India. In an effort to maintain its momentum in the feature phone market, Nokia unveiled two new cellphone models on November 26th. The models were the Asha 205 and the Asha 206, pricing both models at around $62, excluding subsidies and taxes.

Development #4

A fourth development that bodes well for Nokia's future is that the company recently began selling its Window Phone 8 smartphones in the European countries of France, Germany, Britain and Russia. In the United States, the company began selling Windows 8 smartphones with top mobile phone providers, including Verizon (VZ), AT&T (T), and T-Mobile in the country.

Development #5

A fifth positive development for Nokia came on November 28th when a Swedish arbitrator ruled in a patent dispute that Research In Motion (RIMM) was not entitled to make or sell mobile devices which can hook up to WiFi networks - using technology known in the trade as WLAN without first agreeing to pay royalties to Nokia. It was later announced that Nokia will accept a one-time payment scheduled for Q4 and ongoing payments from the Canadian BlackBerry maker. The one-time payment was for $65 million. This was a huge ruling for Nokia because it emphasized the importance of its strong patent portfolio, which some believe could be worth about $4 billion.


Nokia's stock price is down by 22% over the last 52 weeks because of lagging smartphone sales. Competitors such as Samsung (OTC:SSNLF) and Apple dominate the market, and even the sales of smaller competitors, such as Sony (NYSE:SNE) and Research in Motion, surpassed Nokia sales. However, Nokia's stock price has rebounded by 148% since its July 18th low. The main catalyst for the rebound was Nokia's deals with Verizon and AT&T, and recent news that it signed an exclusive marketing agreement with China Mobile.

Nokia's stock has rallied and then faltered before, mainly on sales reports about its Lumia smartphones. However, this rally was different because it was driven by the real market movers - the institutional stock buyers. Over the last quarter, institutional buyers have increased their ownership in Nokia by 17%. Large investment banks such as Morgan Stanley (MS) and Goldman Sachs (GS), while badmouthing the stock in press releases, increased their ownership in the stock by 700% and 90%, respectively. Nokia stock has had a great run, but now is the time for investors to take their profits.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.