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Nokia (NOK) has introduced the Nokia Asha 501 into the market of Thailand and Pakistan. The low-cost smartphone product will cost $99 before the taxes and the local subsidies. In this article, I want to show how the rise in the low-cost smartphone market will enable Nokia to increase its mobile phone revenues by 1% with the new product. This factor will help Nokia to improve its price multiples.

How can Nokia accomplish this feat? Many mobile phone subscribers in the emerging markets cannot afford to purchase a smartphone at the price of over $150. Consequently, they patronize a low-cost smartphone with a selling price of less than $150. According to a market research firm, NPD, the low-cost smartphone shipments will double every year from 2010 to 2016. Nokia will benefit from this trend because its new product costs less than $100 before the taxes and the local subsidies. This will increase the revenues of Nokia's mobile phone sector.

Financial

Nokia is well-positioned to achieve a sales growth with the new product despite its recent reverses in the emerging markets. Nokia's mobile phone sales fell by 31% on a year-on-year basis in the first quarter. The Asha brand could not compete with the low-end Android models because it was more expensive. However, Nokia had 23% of the mobile phone sales in India.

In the fourth quarter, the mobile phone sales improved because Nokia's Asha products and the other low-end solutions were competitive against the Android models. The volume of the sold Nokia's mobile phones increased by 4% on a quarter-on-quarter basis.

Nokia and Asha

In the past few months, Nokia has offered several Asha products that pressed their pricing below $150. The company introduced the Nokia Asha 210 to give its customers a richer social experience at an affordable price. Nokia also launched the Asha 310 to provide its customers with the games and the apps that are the hallmark of the Asha range. The company introduced the Nokia Asha 308 and the Nokia Asha 309 to give its clients a web access at a low cost.

The Nokia Asha 510 will be sold in Europe, the Middle East, and Africa in the following weeks. The product is available in a choice of six colors and allows an instant access to Facebook (FB) and Twitter. "The new Nokia Asha 510 helps people quickly access everything they love with just a simple swipe," said Timo Toikkanen, executive vice president, Mobile Phones, Nokia.

Nokia needs to introduce the Asha 501 to regain its leading position in the emerging markets and prevent its customers from patronizing the vendors of the low-end Android models. Fortunately, the low-cost smartphone market will double till 2016. This is important to Nokia, as it strives to become profitable in the sector.

When we take a look at the recent reports of Nokia, we notice the low-cost smartphone sales dipped when the phones were more expensive than the low-end Androids. We also noticed that there was quarterly increase when the reverse was the case. It is clear Nokia's mobile phone revenues can be improved by a reasonably priced Asha product. So it can be said that the company will make progress with its new solution.

With a price to sales of 0.39, Nokia is trading cheaply. This is not surprising since the company has a gross margin of 33.09%. The newly introduced Asha 501 will increase Nokia's mobile phone revenues and enable the company to improve its earnings per share.

Competition

How is Nokia performing in relation to its competitors? With a price to sales of 0.39, compared to 2.30 for Apple (AAPL), 0.90 for Samsung (OTC:SSNLF), and 0.67 for BlackBerry (BBRY), and a gross margin of 33.09%, compared with 37.50% for Apple, 38.36% for Samsung, and 40.12% for BlackBerry, Nokia is not far behind its competitors. Apple, Samsung, and BlackBerry provide the competing products and are the rivals. However, the Nokia Asha 501 will ensure Nokia remains a competitive company.

Conclusion

There are risks inherent in the purchase of a Nokia share. The brand has been hit by its late involvement in the smartphone market. Also, it will face a fierce battle in the low-end smartphone market, so its success will not be an instant one. However, based on the quality of the Asha 501 and the growth prospects in the low-end smartphone segment, we can say the new product will improve the mobile phone sales of Nokia. Looking at its price multiples, we can say its investors should HOLD the stock for the short term.

Source: Will Nokia Show Growth With The Nokia Asha 501?