Nokia (NYSE:NOK) is desperately pinning its hopes on being able to penetrate the U.S. market in order to make itself a player again in the mobile phone market. The Finnish phone maker is rapidly losing its global market share, which is currently at 14.8%, less than half of the 40% peak it enjoyed in 2008 when it was the biggest mobile phone vendor. Should investors hold on to their Nokia stock in the hopes it can still stage a turnaround?
Nokia's Prospects for Penetrating the U.S. Market
Nokia has been targeting the U.S. since late 2012, when it even gave up less lucrative deals in the Middle East and Africa to focus on this lucrative market. Its Lumia 928, which launched May 16 on Verizon (NYSE:VZ), is being touted as the phone that could help the Finnish phone maker find traction in the U.S. market. And so far, it looks promising. After the launch, there were reports that the Lumia was sold out at Radio Shack and Verizon stores. Although no exact sales figures were released, a report by research company Canaccord Genuity revealed that the Lumia 928 was the third top-selling smartphone for Verizon after just fourteen days in release.
And it is a distinct possibility that Nokia could gain third place in smartphone sales in the U.S. market. According to data from industry monitor Score, HTC (OTC:HTCKF), Motorola (NYSE:MSI) and LG all lost subscribers for the quarter ending April 2013, which provides an opportunity for Nokia to grab market share.
Also worth noting is that only Apple's (NASDAQ:AAPL) iOS operating system managed to increase its market share among the different smartphone platforms, with the biggest loser being Blackberry (NASDAQ:BBRY), which lost 0.8 points. Meanwhile, Microsoft's (NASDAQ:MSFT) Windows dropped just 0.1 point, making it the OS with lowest decline for the period.
One promising factor in Nokia's favor is its partnership with Microsoft, since its use of the Windows OS will help it stand out among other smartphone providers. In fact, data from the Kantar World Panel on the increased penetration of the Windows Phone 8 OS in the U.S. indicate that the prospects are bright for Nokia to take third place in the U.S. market, as Google's (NASDAQ:GOOG) Android and Apple's iOS take the first two spots. Nokia phones accounted for 4% of Windows 8 OS phones sold in the first quarter of 2013, from 1% in the same quarter last year.
The Bottom Line
Although Nokia is unlikely to reach the heights it once enjoyed, there is no reason to think that it cannot successfully re-establish itself as a player in the mobile phone market, even if it is only as a strong third place behind Apple and Google.
Its strategy of targeting emerging markets with lower-priced smartphones seems to be working. While no exact sales figures have again been released, the budget Lumia 520 phone is reportedly selling out in various online retailers in India, another vital market for Nokia. The reported strong sales have also boosted the overall market share of Windows OS phones in the country to the point where it may eventually catch up to the iOS. It may even win more market share for its other entry into the lower-end smartphone market, the Lumia 720, since it recently cut prices for the popular handset, which is reportedly selling well.
The company is also addressing one of the factors that led to its downfall: its massive bureaucracy, which many analysts believed stifled innovation and prevented it from adjusting to changing market conditions. It is currently undergoing a massive restructuring program, laying off thousands of workers and closing down factories worldwide. The effects of this restructuring, it is widely believed, will help the company get back on track. In fact, Nokia's share price may already be reflecting the positive effects of its new initiatives, as it is currently trading at $3.54, a 25% increase from the $2.83 it was trading at this time last year. Its first quarter earnings results also showed that the company remains in good financial health with overall revenues of $7.7 billion, although it still reported a loss of $150 million.
In addition, it should be noted that despite its falling market share, Nokia actually remains the second largest phone vendor in the world based on volume of shipments. The Finnish company shipped nearly 62 million mobile phone units in the first quarter of 2013, while Apple shipped just 37.4 million units globally. However, Apple is widely seen by analysts as set to peak in its global market share unless it can unveil a new product or enter into a partnership with a major carrier such as China Mobile (NYSE:CHL) to penetrate a new market. This increases the potential for Nokia to still be able to stabilize its market share or even grow it.
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.