Don't Close the Line on Nokia Just Yet

I consider myself pretty knowledgeable when it comes to emerging trends in tech. One of my favorite stories right now revolves around the smartphone market and the battle for mobile operating system dominance.

The companies in this space are extremely experienced and know how to capitalize on an amazing opportunity when it presents itself. Within the last few years we have seen new companies entering the mobile space. Apple (AAPL), Google (GOOG), RIM (RIMM) and Microsoft (MSFT) are all looking to bite a chunk out of the new exploding mobile market. Even Garmin (GRMN) wants in with it’s new Nuvifone. While these giant companies have already pushed out once dominant Palm (PALM) and Motorola (MOT) one company still dominates the mobile world, Nokia (NOK).

I recently dug through AdMob’s smartphone statistics for August and was amazed to see the dominant position Nokia has in the global smartphone market. It is obvious that instead of trying to compete for US customers like it’s competition, Nokia has had a much more global focus and captured an unbelievable amount of market share. AdMob’s statistics relate to internet traffic, but provide an amazing insight into the smartphone market. You can download the entire report here, but below are some of the mind-blowing statistics I discovered:

• Nokia had 62.4% share of worldwide smartphone traffic in August '08 with RIM the next closest at 10.8%.
• Nokia manufactures 13 of the top 20 smartphones worldwide.
  
• Nokia has 33.7% market share in total phones, including regular and smartphones. The next closest is Motorola with 13.7%
  
• Nokia dominates in small emerging markets like the Philippines (86%) and South Africa (87%).
  

While spending this week at the TechCrunch50 conference in San Francisco, there was one quote that stood out from the rest. Navin Chadda from the Mayfield Fund said, "We like to invest in companies that have an unfair advantage in customer acquisition".  While he was referring to investing in private startups, I feel like the same holds true for public companies.

Nokia has been busy snatching up global market share while RIM, Palm, Microsoft and Apple have been fighting for the US’s attention. Nokia’s commanding lead in global market share gives it the unfair advantage Navin Chadda was referring too.

While it still dominates, NOK has recently hit a near two year low. The problem is that companies like Apple and RIM are selling their phones at break-even prices for the shear purpose of snatching market share from Nokia, which announced that it would not stoop to their level.

Nokia Corp.

20.61  0.56

The markets do not take this increased competition lightly, but this also presents an amazing opportunity to invest. This aggressive approach from its competitors cannot last long and is purely a marketing scheme that will end.

Reports from Gartner Inc. saying that the slowing economy is effecting smartphone sales and downgrades from clueless investment banks have beaten Nokia’s stock price down to a two year low on the eve of a global smartphone growth explosion. Smartphones present opportunities for multiple business opportunities including GPS, music and movile applications. Nokia’s new Symbian operating system is on par with the iPhone and Android, and will be able to compete with the best of them.

Nokia’s current stock price looks extremely undervalued at these levels. Compared to it’s new competition, I might even consider it a steal. Picking up some shares of NOK under $24 might be one the best opportunities available in the tech market today.

Disclosure: I definitely own some NOK

Comments

[Yagottabe K...:]

Admob gathers statistics on MOBILE web site traffic, not regular web site traffic (mobile web sites are those with drastically reduced content - often JUST text, that fit "better" on small phone screens as well as using considerably less data transfer). Here's Engadget non-mobile, then mobile, for example:

www.endgadget.com

mobile.engadget.com/

Furthermore, Admob gathers statistics ONLY for those mobile web sites carrying Admob's ads.

Thus you're talking a small percentage of a small percentage of actual phone web site browsing from which statistics are being gathered.

The iPhone, for example, is known for its good web browsing capability. THAT phone would be visiting NONmobile web sites while a reduced-capability phone like, say, the RAZR would be visiting MOBILE web sites.

So drawing ANY general conclusion about phones from Admob's statistics is simply wrong.

Period.

2008 Sep 12 07:20 AM

[Yagottabe K...:]

Let's try those two Engadget links again:

========
Here's Engadget non-mobile, then mobile, for example:

engadget.com

mobile.engadget.com

Sorry about that.

2008 Sep 12 07:22 AM

[Michael And...:]

I disagree that Apple and Rimm are selling their phones at "break even prices" to gain market share. Though I completely agree with your overall opinion of NOK being WAY undervalued (I have a great many shares myself.) I must say that there are some flaws to the article with the reference to AAPL and RIMM being just one. Rather then think that Rimm is undercutting to gain market share Nokia feels just the opposite as reported in this article: www.businessweek.com/g... Also Nokia's problems with reduced market share have nothing to do with the high end phones but with low end phones that are being undercut in developing countries: www.australianit.news....

2008 Sep 12 07:55 AM

[Jon T:]

He says: "companies like Apple and RIM are selling their phones at break-even prices for the shear purpose of snatching market share from Nokia"

Are you nuts? Have you not seen the queue's of providers fighting for the rights to sell iPhone in their markets? Do you think Apple would give it away for market share in those circumstances?

You're peddling snake oil...

2008 Sep 12 08:57 AM

[brewer:]

He says: "companies like Apple and RIM are selling their phones at break-even prices for the shear purpose of snatching market share from Nokia"

Buzzzzz, guess again, thanks for playing. The iPhone price is what the CONSUMER pays. AT&T wisely is willing to pay a huge percentage of the actual price of the phone. It's bringing them customers in droves.

Apple gets somewhere around $500-$600 per iPhone.

Nokia has none, (that is zero) shot at the smart phone market (which really should be called the iPhone market at this point since there are no legitimate competitors and no other company even has any hope of getting there in the next 2-3 years.

Nokia might have good business in the next several years making phones, but there is no way they can make an iPhone like device, they have no experience making computers and iPhone is more computer than phone.

2008 Sep 12 11:25 AM

[jack dee:]

Nok , does not have shot a getting a slice of the smart phone market ????

Are you insane? NOK has a huge slice. Apple will not rule the phone market, there are too many players too many plans and not nearly enough Apple Fanboys outside of the USA.

2008 Sep 12 01:53 PM

[KenC:]

Dude, when you start a piece with, "I consider myself pretty knowledgeable when it comes to emerging trends in tech.", you are just asking for trouble. I mean, don't pat yourself on the back with your first sentence! Pat yourself on the back, when you have some evidence in hand of your ability to forecast emerging trends!

Like write a piece on emerging smartphone trends, and then in 6 months when your points come true, then you can pat yourself on the back, and link to what you had written previously. Then you look smart.

Then you said, "The problem is that companies like Apple and RIM are selling their phones at break-even prices for the shear purpose of snatching market share from Nokia, which announced that it would not stoop to their level." Where is the evidence that Apple and RIM are selling their phones at "break-even prices"? Have you looked at their margins? Nokia didn't mention any companies by name, and the odd thing is that Nokia is the company that has been gaining market share by flooding developing markets with low prices. Besides, what I've heard is the Nokia comments were referring to Sony Ericcson, not Apple or RIM.

Then you said, "This aggressive approach from its competitors cannot last long and is purely a marketing scheme that will end." Please explain. How do you know that this is a marketing scheme that will not last long, if you don't even know who Nokia are talking about? We KNOW that Apple can't be the one, since they are making great margins on their product, so they can continue ad nauseum. I don't think anyone following RIM thinks their company is selling product at "break-even" so tell us, who is?

Then you said ,"Nokia’s new Symbian operating system is on par with the iPhone and Android, and will be able to compete with the best of them." How do you know Symbian is on par with OS X and Android? You do realize that Symbian is NOT "new". And, if Symbian were so great, why then, did they use Linux in their handheld device the N800 and N810? One would think that it would be an ideal platform for the power of Symbian if it were "on par" with OS X or Android.

Now, I can't say whether Nokia is a good buy or not, superficially it looks good to me, but your above reasoning for doing so, is sorely lacking in due diligence.

2008 Sep 12 10:48 PM

[brewer:]

Going forward, Nokia simply can't compete. For now, they have a sizable slice of the old smartphone market in the global market where the iPhone only entered 3 months ago. iPhone is a game changing device, it's not simply a phone with some hobbled internet features cobbled onto it.

2008 Sep 12 10:53 PM

[chano:]

Err. I am an outright Apple fanboy since 1978 and I don't live in the USA thanks.
Nokia is a great company in its way but how can you compare Symbian with OSX when Nokia beds with others eg first with Linux and now MS?
If they want to thrive in the future, and to be sure the market is large enough to support more than one winner, they have got to understand that what used to be good enough (pre iPhone) just won't cut it in the future. Their problem is similar to the dilemma that MS faces. IT will take the best part of a decade for any player to catch up with OS X and where will the Apple ecosystem be by that time. 7 years ago there was no iPod. A year + ago there was no iPhone. Whither next in the years to come?

2008 Sep 13 02:35 PM

[Question1919:]

Insider news...Nokia going through a series of cost-cutting measures, including a global travel ban for many months.

2008 Sep 25 03:03 PM