Nokia Is Turning Its Focus On China

Jun.27.12 | About: Nokia Corporation (NOK)

Struggling to find the expected demand for its latest phones in North America, Nokia (NYSE:NOK) is turning its focus in China where the company enjoys a strong image. Unfortunately for Nokia, many Americans are unaware of Nokia's latest phones as those that can afford Apple's (NASDAQ:AAPL) iPhone usually go with it and those that can't afford Apple's phones end up buying phones by either Samsung or LG. Nokia doesn't enjoy as strong of a brand name in US as it enjoys in the rest of the world, hurting the company's sales here.

Olivier Puech, the operations officer of Nokia's Asia-Pacific unit announced that "The company has made a decision to continue investing heavily in Asia in terms of product development" last week, meaning that the company will continue to move its efforts and focus from the western world to Asia where it hopes to deliver smart phones to the next billion people. Nokia made a strong presence in Mobile Asia Expo in China last week and its new products received a lot of positive reaction from the visitors.

Lately, the company closed a couple production plants in Finland and opened a new plant in Vietnam. The company's Vietnam plant is expected to build phones mainly for Asian customers. Some may think that the Asian market is too crowded with too much competition after a number of Chinese companies entered in the market. However it is important to note that Nokia continues to enjoy a strong brand name in the continent due to its affordable high quality phones over the years.

The company continues to market both Windows and Symbian phones in Asia. At the moment, Nokia plans to focus more on Windows phones; however this doesn't necessarily mean that the company will stop selling Symbian phones. More and more applications in Chinese are being created for the Windows phones, reflecting the demand for these phones in the country.

The potential is huge in China as every fifth person on earth lives there. There are 800-900 million people who are potential buyers of a smart phone. Obviously most of these people can't afford to spend $600+ on a mobile phone, however many of them will switch to an at least low-end smart phone before the decade ends. There are rumors that Lumia is outselling iPhone in China. The phone is slightly cheaper than the iPhone in the Chinese market.

Currently Lumia phones are available in 54 countries and there are a total of 130 service providers that sell or support Lumia. Currently there are 90,000 apps designed for these phones with nearly half of these apps available in China. In addition, there are about 6,000 apps that are designed specifically for Chinese markets. In addition to Lumia 900, a lower end version Lumia 610 will also be introduced to Chinese markets soon.

The holiday season of 2012 will be very interesting for Nokia. It may be make-or-break point for the company. The launching of Windows 8 makes the holiday season even more dramatic. I personally believe that Nokia will sell enough phones to return to profitability in the holiday season. Earlier I had predicted that Nokia would turn to profitability in the third quarter of 2012, however this proved to be impossible due to high restructuring costs. Nokia is aggressively cutting costs and this should be applauded rather than criticized by the investors.

Disclosure: I am long AAPL, NOK.