Nokia Is the Smart(phone) Bet - Barron's

Nokia's (NOK) surprise warning on Friday that Q3 market share would be lower than expected sent shares tumbling 7.6% to $20.62. Barron's believes the drop in share price makes Nokia a bargain, and expects long-term growth.

Nokia still expects to see an increase in market share for the year, and indicated that Friday's warning of lost market share was mostly on the lower end where competitors have drastically reduced the price of basic handsets. Nokia's focus, however, is less on market share and more on profitable growth. As smartphones become ever more popular among average users and emerging market customers, Nokia will be in position to boost its profit margins by providing sophisticated handsets at reasonable prices. Nokia has lost some smartphone market share to niche players Apple (AAPL) and Research in Motion (RIMM), as expected, but has retained its spot as the world's largest seller of smartphones, and has new products like the E71 smartphone on the way.

• Mark Sue of RBC Capital Markets has a one-year target of $31.

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• Gartner sees global sales of mobile phones growing to 1.28B units in 2008, an 11% increase from 2007. Sales are increasingly likely to rely on growth in emerging markets.

Comments

[Oh Blah Dee...:]

RE: "...Nokia still expects to see an increase in market share for the year..."
*
Market share does NOT equal high profit. Any company can sell at razor slim margins or below cost and gain market share, but I wouldn't want to own its stock.

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RE: "...Nokia has lost some smartphone market share to niche players Apple (AAPL) and Research in Motion (RIMM), as expected..."
*
Apple is a MAJOR player, and may be the DOMINANT player in the smartphone market in the coming years.

It's all about the iPhone operating system, UI (user interface), and APP store.
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2008 Sep 07 05:02 PM

[papita:]

this is not a good stock to own. if you want to make money, don't buy nokia. I have followed it since the late 90's and they disappoint on a regular basis. for the most part, their stock goes nowhere.

2008 Sep 07 05:02 PM

[Azazello:]

oops! that pesky marketshare bit won't go away -- now that phones are getting smarter the niche-players with OS building savvy will own the future. MIcrosoft sort of knew this and Symbian was an attempt of honorable mention but I am betting on OS X running on the iPhone. A second Black Swan for Apple (the first was the iPod) and the third may be just the Mac.
PS you do have an optimistic smile!
(wasted on NOK...)

2008 Sep 07 05:09 PM

[marshgerda:]

I agree with you 100%. AAPL and NOK recognize that near computers are the future. Jubak wrote a recent article on this fact and has NOK as a buy with a $37 price target. $20.62 is a great entry point.

2008 Sep 07 05:46 PM

[Kontra:]

I explored the 10 factors it'll take to compete with the iPhone, and Nokia possesses very few of them:

Who can beat iPhone 2.0
counternotions.com/200.../

2008 Sep 07 07:01 PM

[H-Bomb:]

I can't believe that no one has commented on what a cutie Ms. Granby is.

2008 Sep 07 08:14 PM

[tuskagee:]

A-P-P-L-E spells D-O-O-M for unenlightened handset purveyors.

2008 Sep 07 08:23 PM

[H-Bomb:]

C'MON!

2008 Sep 07 09:15 PM

[whereismybonus:]

I'm with you, H-Bomb. I wanted to write something snide and cynical on Nokia, but, looking at Rachel's smile, I just can't.

2008 Sep 07 10:26 PM

[Johnnymack:]

< As smartphones become ever more popular among average users and emerging market customers>
...those users will likely buy a phone from a company whose devices they are already familiar with, like maybe an iPod, and whose software that syncs between the phone and their computer they ALREADY have installed on their system!

<Nokia has lost some smartphone market share to niche players Apple (AAPL) and Research in Motion (RIMM),>

which will likely continue and redefine those "niche players" as something other than "niche players".
And oh! NOK is coming out with a NEW model! wow! HOW MANY models do they produce anyway? All with different screens, keyboards, electronics, etc... all needing advertising dollars too.
See any elegance and MONEY savings over at Apple, by having one device (ok, 2 memory and 2 color configs) and also that one phone shares many parts (especially the expensive touch screen) with the iPod Touch !
Whose inventory do YOU want to be in charge of stocking parts for and tracking sales??? That's efficiency, that's economies of scale, that's MONEY

2008 Sep 08 07:38 AM

[brewer:]

There is just no way that Nokia can complete with Apple going forward. Apple have completely outclassed them. If Nokia is loosing money on the low end, that was their strength. There is just no way that Nokia can make a computing device that can even come close. Phones, sure, they are good at simple phones, but that is it. By the time Nokia gets back on it's feet, Apple will have iPhones available on all cariers and will be pushing into the low end market.

Also, you conveniently ignore that Apple is a huge bargain at this point--all stocks are down. Also, Apple have a huge resurgence in laptops, the iPod market, software, app store (projected to bring in 1B annually), enterprise sales are booming, etc...

Apple is literally taking the computer market from Microsoft, and are the only ones that can do it.

The market is correct on this one.

2008 Sep 08 08:32 AM

[Jon T:]

The mobile phone is dead.

Long live the computer.

2008 Sep 08 08:41 AM

[sleepy:]

Carriers no longer want to subsidize Nokia's high end phones when iPhone still sucks subscribers away and Nokia has a declared intention to become a competing service company ("comes with music"); thus Nokia has lost pricing power at the high end, which damages earnings.

By giving exclusive carrier deals, Apple has avoided this fate.

I suspect China (Nokia's biggest market) wants to give its volume business to domestic handset makers in preference to Nokia. This hits both unit and dollar sales.

2008 Sep 08 10:12 AM

[user1010101:]

Although I agree that the actual public announcement was a surprise, it should NOT have been assumed that Nokia was invulnerable to the slowdowns in EMEA, APAC. Nokia is the market share leader (over 40%) an as a result, will be directly affected. The stock should not have fallen so much given that it was already off 40% from its highs, trading at a trough multiple despite having ROE > 45% last year.
The smartphone market offers upside to all handset providers (watch out for their new E71)!

2008 Sep 08 11:54 AM

[user1010101:]

Although I agree that the actual public announcement was a surprise, it should NOT have been assumed that Nokia was invulnerable to the slowdowns in EMEA, APAC. Nokia is the market share leader (over 40%) an as a result, will be directly affected. The stock should not have fallen so much given that it was already off 40% from its highs, trading at a trough multiple despite having ROE > 45% last year.
The smartphone market offers upside to all handset providers (watch out for their new E71)!

2008 Sep 08 11:54 AM

[uh-huh:]

On Sep 08 08:41 AM Jon T wrote:

> The mobile phone is dead.
>
> Long live the computer.

So speaks the brit with the mouth. It's probably the other way round. The computer is dying, long live the mobile platform. But then you'd knoe since you are the expert with "credibility". ROTFFLMFAO.

2008 Sep 08 12:39 PM

[samij:]

try to get some perspective and look beyond the us borders. outside the us iphone is not selling all that great, nokia rules especially in the smartphone segment, having over 70% market share in emea.

and in case of nokia, high market share does equal high profits. nokias profit margins are in fact higher than apples.

2008 Sep 08 01:39 PM