If Nokia (NOK) were a man, it might fall to its knees each morning and pray to Apple (AAPL) for mercy, because despite flooding its world with Smartphones, things could be worse for Nokia. That is because each day that Apple is not offering a lower priced iPhone model is another day in which Nokia survives. However, Nokia will not need Apple's mercy forever, as with each passing day it grows more capable of competing with Apple's iOS operating system. Likewise, Apple's differentiation and brand appeal, dare I say, might be starting to fade, giving the disrupted Nokia a chance to fight its way back into market share. Though Apple has been merciful, it knows that Nokia prays to another God, Microsoft (MSFT), and so Apple appears set to unleash its full wrath upon competitors offering lower priced goods, including Nokia and Samsung (OTC:SSNLF).
According to a late May published Wall Street Journal article, Apple has engaged a new partner in China, Pegatron, which is possibly going to assemble a cheaper iPhone model for the company. Such a model would pose an immediate threat to Apple's competitors who have survived where others have fallen due to the difference in price point. Nokia longs please forgive me, but that includes your stock.
IDC reports first quarter global mobile phone market share led by Samsung (27.5%), and then Nokia (14.8%), not Apple (8.9%), because there remains a good portion of the world that cannot afford to pay up for apps and Internet. However, because of the significant penetration and appeal of Smartphones, and Nokia's delay in getting into the game, its market share fell from a much higher level of 20.6% in the first quarter of 2012. That's a steep loss and it represented a loss in sales of more than 20 million units year-to-year. Nokia was clearly in danger of being rendered irrelevant before its launch of the Lumia, its collaboration with Microsoft, and it's still not out of the woods. After all, it does not even show up on the leader board for global Smartphone market share.
Nokia's new phones and their operating system have some appealing aspects to them, but my feeling about the brand appeal is less than good. Now my feeling is not supported by any PR research, but judging by the stock's price action, I'm not alone. Nokia is likely praying that Lumia stops its bleeding market share, and thereby stops its stock slide. NOK is down 11.6% year-to-date.
It's hard to trust in a valuation that is based on figures that have been so volatile recently. Still, the stock trades at 24.9X the consensus of analysts' earnings estimates for 2014, which is not cheap considering the situation. Meanwhile, it's only expected to grow earnings 7.5% on average over the next five years. A lot can go wrong in getting there, though some upside opportunity certainly exists as well.
Perhaps, Nokia and Blackberry (BBRY), which also seems to be making a last stand now, will benefit from traction on their established relationships with sellers of their goods and with end users. It seems hopeful to invest on that possibility alone, and makes sense to take a wait and see approach here regarding Lumia, considering the analysts' outlook for Nokia. At the same time, it looks like Apple will show Nokia no mercy, as it seeks better penetration internationally, and now that the market share war is being waged by all mobile phone makers on multiple fronts. As a result, I would sell Nokia today.