There are few companies that have ruled their markets like Nokia Corporation (NOK) has done in the past. The company was a pioneer and market leader in the global mobile phones market. Nokia brand is still one of the most widely recognized brands in the world. However, the rise of smartphones has hurt the company badly. Nokia, despite having an incredible research and development team, has been unable to compete in the smartphone market. Apple Inc (AAPL) and Samsung (SSNLF.PK) have dominated the smartphones market by positioning themselves as the premium Smartphone manufacturers. On the other hand, Nokia is seen as a company catering to the masses, and it probably has the deepest penetration in the developing markets. Current management has been trying to end the decline and turn around the company. Recent sales figures were encouraging, showed that the change in strategy may well be working Nokia.
Introducing Cheap Smartphones, a Correct Decision?
Nokia has always been a company that caters to all the segments of society. Common people as well as business customers have always felt a bond with the company. In the past, smartphones were only deemed appropriate for business customers. However, the launch of Apple's iPhone changed the dynamics of the market. Smartphones became house to more than just business applications, phones became the portable entertainment box with all the perks needed. Nokia did not realize the opportunity and fell behind Apple and Samsung. The smartphone market is undoubtedly the most attractive and lucrative market at the moment. Companies like Apple and Samsung have positioned themselves for high-end customers, and their handsets are out of reach for customers. Even BlackBerry (BBRY) has positioned its new handset (Z10) alongside Apple's iPhone and Samsung's Galaxy series.
I believe Nokia cannot compete with Apple and Samsung due to the brand loyalty those two companies enjoy. Furthermore, Nokia will always be known as a company that caters to the needs of common people. The moderate success of the Lumia series is a proof that Nokia will have trouble taking the market share from Apple and Samsung in the North American markets. Apple had probably one of the worst responses to its iPhone ever and Nokia was still not able to impress. However, I do not believe this is a disadvantage for Nokia. There is a massive market for cheap, affordable smartphones, and I believe the company can exploit these markets. Recently, the company announced cheaper smartphones that will hit the markets soon.
Massive Potential in the Developing Economies
As I said above, smartphones are attracting all categories of customers now, and the market has widened considerably. Demand for smartphones is rising sharply in developing economies. Nokia has an advantage in these markets due to its strong presence. Price becomes one of the most important factors while choosing a Smartphone in these markets. I expect Nokia's cheaper smartphones to achieve substantial success in the developing world. A very small percentage of customers can pay for iPhone or Galaxy handsets in these markets. As a result, customers look for the next best option available.
Nokia's cheap smartphones allow these customers to buy phones with almost the same features at a low price. Customers in markets like India, Pakistan, China, SriLanka and Bangladesh have strong confidence in Nokia and show considerable brand loyalty. These countries have some of the highest mobile phone user numbers. And, it is almost impossible for the majority of the customers to afford high-end sets from Apple and Samsung. Margins will be surely lower from these handsets. However, if the company is able to successfully launch these sets, revenue figures could go substantially higher than current levels. According to reports, Nokia Lumia 720, a variant of the cheap smartphones, is close to the launch in the U.S. as well. Again, it will be extremely difficult for the company to compete against Apple and Samsung in the North American markets.
I like the idea of selling cheap smartphones in developing economies. The company has a strong brand name in these countries, which can play a vital role in the turnaround of Nokia. I believe Nokia should put more focus on these low-end product markets and achieve high volume sales. Competition for the top spot in the market is extremely tough, and Apple and Samsung are unlikely to give breathing space to any other player. As a result, I think Nokia should shift focus to developing countries and strengthen its position in the low-end smartphone market. However, I do not suggest that the company should leave North American markets. I suggest only a small change in the strategy and more focus on the developing countries with cheaper handsets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.