Symbian 3 Launch Delay Will Hurt Nokia’s Margins and Its Stock

Includes: AAPL, BB, NOK
by: Trefis

Nokia (NYSE:NOK), which competes with Apple (NASDAQ:AAPL) and Research in Motion (RIMM) in the mobile phone market, stated in its recent earnings release that the Symbian 3 launch will be delayed by at least three months, pushing the release date to the third quarter of 2010.

Nokia is trying to revive its declining mobile business by introducing new smartphones based on its Symbian 3 operating system. The company’s stock has declined from highs of nearly $40 in 2007 to about $12 today amid growing smartphone competition from Apple and RIM.

We estimate that there could be a downside of 10% to the $23 Trefis price estimate for Nokia’s stock if the company’s operating margins were to decline further as a result of the delayed Symbian 3 launch.

Operating Margin Declines

Due to the delay, Nokia expects operating profits for its mobile phones division to be around 11% to 13% in 2010 rather than 12% to 14% as previously estimated. We believe the decline in operating profits outlook will be due to increasing R&D and SG&A expenses associated with Symbian 3 delay.

We have updated the operating margins for Nokia’s Developed and Emerging Markets to 12.5% from our earlier estimate of 15.5%. Below we explain why Symbian 3 is crucial for Nokia to compete in the mobile phone market, and the possible downside to its stock due to delay in the Symbian 3 launch.

Nokia Could Have Competed Better Against Apple iPhone with Symbian 3

Symbian 3 phones will have an improved version of Nokia’s Symbian Operating System with features like multi-touch, fast flip scrolling, and a free navigation software. These features will make the new phones attractive to consumers and can help Nokia compete better against Apple’s iPhone OS and Android OS.

Apple, in its recent release of iPhone 4.0 OS, introduced new features like multitasking with low battery consumption, and security features for businesses. In another article, we described how the iPhone 4.0 OS release will benefit Apple’s market share at the expense of RIM and Nokia.

With its Symbian 3 OS, Nokia could have competed more effectively against the iPhone and Android mobile operating systems. The delayed launch could lead to a decline in Nokia’s share in developed markets as well as emerging markets.

10% Downside to Nokia’s Stock from Symbian 3 Launch Delay

Although we forecast that Nokia’s operating margins will decline to around 12.5%, there could be a downside of $2.30 (10%) to the $23 Trefis price estimate for Nokia’s stock if Nokia’s operating margins were to decline to 11% in 2010 as a result of delay in the Symbian 3 launch.

You can modify our forecasts above to see how Nokia’s stock will be impacted if its operating margins in Emerging and Developed Markets were to decline at a faster rate than we forecast.

Disclosure: No positions