Nokia Is Helping Windows Phone Gain Market Share

| About: Nokia Corporation (NOK)

On April 1st, Kantar (a British market research company that forms panels in order to research customer behavior and attitudes in a range of industries, including but not limited to the telecom industry) released a research report which was no joke. The report looked at the American smartphone market to examine the latest trends. In the period from November of 2012 to February of 2013, 51.2% of the smartphones sold were based on Android (NASDAQ:GOOG), which represents a growth rate of 5.8% compared to the same period a year ago. iOS (NASDAQ:AAPL) followed Android closely with a market share of 43.5%. This was no surprise; however, there was one surprise element in the report. Windows Phone (NASDAQ:MSFT) accounted for 4.1% of all smartphones sold in the period, which is significantly up from 2.7% last year. The market share gain was mostly due to Nokia (NYSE:NOK) and the company's Lumia phones.

Furthermore, Windows Phone's market share gain was not limited to the US either. In the UK, the operating system's market share grew from 3.0% to 6.7%, which represents a more than double growth rate. Nokia represents a significant portion of this number, as the Lumia series alone claims a market share of 5.6% in the country. In Germany, the operating system's market share grew from 6.3% to 6.7%. In Italy, Windows Phone represents a market share of 13.1% compared to the 5.4% of market share last year. In Australia, Windows Phone's market share doubled from 1.7% to 3.4%. In Mexico, the operating system enjoyed a market share of 5.9% compared to 5.2% last year. Finally, in urban China, Windows Phone enjoys a market share of 1.5%, but Kantar did not provide the data for the previous year in this particular country. Microsoft-Nokia partnership goal is to reach a double-digit (i.e., at or above 10%) market share globally by 2020. If the rate of growth continues like this, the goal might be reached well before 2020. Globally, 3 out of 4 Windows Phones sold are built by Nokia. There is no way Windows Phone can survive or gain any significant market share without Nokia.

It looks like Windows Phone operating system stole some market share from BlackBerry (NASDAQ:BBRY) during this period. While Apple's iOS and Google's Android present very tough competition, Windows Phone operating system can continue to grow modestly by taking market share from BlackBerry in addition to gaining consumers who are upgrading from a feature phone to smartphone for the first time. Nokia enjoys an advantage here because most feature phone owners are very familiar with the brand which makes it possible that they will give a chance to Nokia when they can afford a smartphone and decide to upgrade. As per stealing market share from BlackBerry, this trend was observed before BlackBerry's launch of Z10 in the US; therefore, the trend might or might not change in the future. Up until this year, BlackBerry was the company with the third largest market share in the US smartphone market, but now the company is in fourth place after Microsoft's Windows Phone.

Recently, Indian market shares were also announced. It turns out that smartphones make up only 6% of the overall mobile phone market in the country. Furthermore, Nokia is the top company in market share of the feature phones and second to Samsung (OTC:SSNLF) in market share of smartphones. Nokia enjoys 22.5% of the market share in feature phones and 13.3% of the smartphone market in India, which is the second largest market in the world. As Indians move from feature phones to smartphones, Nokia's strong brand name in the country will benefit greatly from this transition. In fact, Nokia's low end Asha phones are rapidly gaining popularity in India. While the ratio of smartphones to all mobile phones in the country is as little as 6%, the number of smartphones continues to grow at an annual rate of 38%.

It was also reported that a great majority of the smartphones sold by Nokia are Windows Phone 8 devices rather than Windows Phone 7 devices. When Nokia's phones that run on Windows Phone 8 were launched, all the Nokias using Windows Phone 7 saw a price drop and their margins suffered. As the company sells more Windows Phone 8 devices and less Windows Phone 7 devices, the overall margins will improve accordingly.

The fact that Windows Phone did not lose market share in any of the geographies studied was very encouraging for the investors of both Microsoft and Nokia. There will be an uphill battle and earning further market share will not be easy; however, it is quite possible. From the looks of it, Windows Phone operating system is getting its foot in the door with the consumers, which is crucial for a product's survival. Nokia is well positioned to fight this war alongside of Microsoft due to three reasons: 1) Nokia enjoys a brand name not many companies enjoy, 2) Nokia builds a huge variety of phones ranging from the lowest-end possible to highest-end possible and it offers something for all income levels, 3) Nokia's new phones are comparable to the phones of the market leaders (Apple and Samsung) in terms of quality and usefulness.

In conclusion, Nokia's recovery continues as the company slowly but surely walks on the way of a comeback. In a matter of days, we will hear from the company regarding how the last quarter went, and I am expecting to hear some encouraging things. I am still long Nokia and I am very tempted to add to my existing shares.

Disclosure: I am long NOK, MSFT, AAPL. 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.

Additional disclosure: I may initiate a long position in BlackBerry over the next week.