Seeking Alpha
Long/short equity, research analyst, tech, alternative energy
Profile| Send Message|
( followers)  

The Finnish mobile giant Nokia (NYSE:NOK) is showing urgency in its product launches to recapture its dominance of the mobile phones market. Nokia used to be the undisputed No.1 in the mobile market with a ~40% global market share. However smartphone advances have led Nokia to become an also-ran as Samsung (OTC:SSNLF), Apple (NASDAQ:AAPL), HTC etc. have taken the initiative. While Nokia is making a strong comeback with its Lumia range of Windows smartphones, it is not neglecting the "feature phone" segment of the market. This segment saw a sharp decline in shipments during the first quarter of 2013. Shipments fell due to Nokia focusing more on the Lumia range and stiff competition from Samsung and regional mobile phone companies. Android smartphones are now available for ~$100, which makes it tough for Nokia to sell feature phones that do not have smartphone functionality. It is also possible to buy cheap "phablets" for ~$130, which look like Samsung's popular Galaxy Grand and Note phablets. While Nokia's signature "Asha" range of phones was doing spectacularly last year, they have fallen short in 2013 due to lack of new product launches. Nokia is revamping its Asha range to take on the competition. I like Nokia's stock because of its very cheap valuation and strong possibilities of making a turnaround.

Worldwide Mobile Phone Sales to End Users by Vendor in 4Q12 (Thousands of Units)

Company

4Q12

Units

4Q12 Market Share (%)

4Q11

Units

4Q11 Market Share (%)

Samsung

106,957.7

22.7

93,830.3

19.6

Nokia

85,054.8

18.0

111,699.4

23.4

Apple

43,457.4

9.2

35,456.0

7.4

ZTE

16,160.6

3.4

18,915.1

4.0

LG Electronics

14,981.3

3.2

16,938.3

3.5

Huawei Technologies

13,679.1

2.9

13,966.1

2.9

TCL Communication

11,097.6

2.4

10,695.3

2.2

Lenovo

8,305.4

1.8

5,206.3

1.1

Sony Mobile Communications

7,946.6

1.7

8,935.7

1.9

Motorola

7,822.2

1.7

10,075.3

2.1

Others

156,613.7

33.2

151,985.1

31.8

Total

472,076.4

100.0

477,703.0

100.0

Source: Gartner (February 2013)

Nokia's Feature Phones Bombed During the First Quarter

Nokia's stock price crashed after the company revealed a sharp decline in mobile unit shipments. Total mobile phone volume sales declined by 28% year on year as the company's feature phone segment took a big hit. While I was happy with Lumia's strong performance (shipments up 30% quarter on quarter) and Nokia Siemens' continued turnaround, the market did not take too kindly to the sharp unit decline. Nokia's feature phone shipments fell sharply to ~55 million, which led to a sharp fall in overall revenues. Nokia is the second-largest mobile seller in the world despite having less than 5% market share in the premium smartphone segment of the market.

Shifting to our Mobile Phones business, and Asha; in Q1, our Mobile Phones business had a difficult quarter. Our mobile phones Q1 volumes decreased 30% quarter-on-quarter to 55.8 million units. We believe the decline in our Mobile Phones business was primarily due to competitive industry dynamics as well as an estimated higher than normal seasonal decline in the market addressed by our mobile phones products.

Nokia has decided to focus on price competitiveness and launch new products to stem the decline in feature phone shipments. The company has already launched a couple of new Asha phones with innovative features and is all set to launch its new flagship Asha 501 on May 9.

Nokia Gives Asha a New Look

The Nokia Asha series of phones delivers most smartphone features like Wi-Fi connectivity, touch screen, large screen size and a decent camera. These phones serve all the basic features without costing a lot. However, competition has reacted fast to the earlier success of Asha phones. Samsung has introduced a new "Rex" product line to stem the market share losses from Asha. The "Rex" line of Samsung phones are squarely targeted at Asha with a price ranging from ~$75-$100. The Rex line does not have an operating system like Asha phones but has popular features like Internet access, dedicated Facebook App and Wi-Fi connectivity.

1. Asha 105 is Nokia's Low-Cost Warrior

As part of its feature phone product revamp, Nokia introduced the cheapest Asha phone to date with a price of ~$20. Asha 105 was first launched in India, which is the world's biggest market for feature phones with almost 200 million feature phones sold in 2012. The new Asha phone has features that meet the needs of emerging market customers and is 25 percent cheaper than the Nokia 1280. The phone is resistant to water and dust, which should ensure the popularity of this phone. Nokia has a long-standing reputation of making extremely sturdy and reliable phones with Nokia's 1100 phone having a huge fan following in India.

2. Asha 201 - Ultra Low-Cost Qwerty Competitor

Nokia understands the emerging market customer quite well and has launched a QWERTY Asha 201 phone with a dedicated "WhatsApp" button. The Indian market has seen the popularity of WhatsApp zoom in recent days at the expense of Facebook (NASDAQ:FB). In keeping up with new consumer trends, Nokia has not only put a keyboard like BlackBerry's (NASDAQ:BBRY) Q10 smartphone but also put in a dedicated button. At ~$70, Nokia has managed to put in a lot of nice features such as Wi-Fi connectivity, a 2 MP camera, social networking apps etc.

3. Asha 501 Premium Smartphone Features at a Feature Phone Price

Nokia is pushing hard to market its new flagship feature phone - Asha 501. Nokia will probably launch this phone in India on May 9. The Asha 501 has features that are found in medium range smartphones with rumors floating that Asha 501 will have specifications such as 5 MP camera with LED flash, 1 GHz CPU and an advanced touch screen. Nokia's lowest priced Lumia phone is the Lumia 520 at ~$180. This means that Asha 501 will be priced somewhere in the region of $100-120.

Stock Performance and Valuation

Nokia's stock has recovered by ~10% after falling sharply to $3 after reporting its Q113 results. I think that recent Lumia phone launches in the emerging markets and Europe has led to a more positive sentiment. Nokia is keeping the market abuzz with rumors that a new Lumia flagship phone will be announced during the London meeting. Nokia is currently trading for a P/S of just 0.3 and P/B of 1.2. The company's current market capitalization is $12.5 billion, which means that the enterprise value is just $7.5 billion.

Summary

There is no doubt that Nokia has not performed well in the feature phone segment with shipments falling sharply. However, the company's new product launches are pretty good adding a lot of new innovative features like the dedicated "WhatsApp" button, water resistance etc. at very low prices. This will help Nokia compete better with the local players in India and China, which have flooded the market with low-cost Android smartphones. Nokia is already seeing a steady increase in the smartphone market with Lumia smartphones expected to climb up by 30% in Q213 after a good performance in Q113. If Nokia can stem the decline in the feature phone segment, then Nokia can reverse its current downtrend. I remain optimistic about Nokia's prospects given its cheap valuation and new product launches.

Source: Can Nokia Revitalize Feature Phones With New Asha Launches?