Nokia Gains 22% Even As It Bleeds Share Outside Of Emerging Markets

Trends aren't good

Nokia, which competes with Apple, Research in Motion and Motorola in the mobile phone market, has lost share in developed markets like the U.S. and Europe over the past few years.

We believe the market share loss was caused by insufficient focus on customer needs, delays in introducing new operating systems, and incompatibility with networks of telecom operators. We expect Nokia’s share in developed markets to fall further over the coming years.

Despite weakness in the company’s developed market growth prospects, we maintain a price estimate of $12.44 for Nokia, roughly 22% ahead of market price. Nokia generates an estimated 53% of its value from emerging markets (vs. 17% from developed markets), limiting the impact of downside to its developed market operations.

Insufficient Customer Focus

Nokia has struggled to match the evolving needs of U.S. and European consumers, as its mobile phones have often fallen short of customers’ customization preferences. In addition, Nokia was late in launching touch screen phones, allowing its competitors to take advantage of a head start into this lucrative market.

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Nokia’s phone design has also drawn criticism. Demand for thin and lightweight phones has been on the rise over the past few years, but Nokia was unable to successfully implement these features in its phone design.

Operating System Release Delays

Symbian 3, Nokia’s enhanced version of mobile operating system (OS) due for launch in Q2 of 2010 was delayed by three months. (1) The Symbian 3 launch represented a real opportunity for Nokia to compete with leading phones like the iPhone and Blackberry, as it had highlighted improved features like multi-touch, fast flip scrolling and free navigation software. Unfortunately, these delays only hampered Nokia’s brand image.

We’ve previously written that Nokia’s N8 smartphone, its first to run Symbian 3, will likely produce minimal upside to our base market share projections. (Can Nokia’s N8 Smartphone Boost Market Share)

More recently, Nokia also announced the delay of its new E7 smartphone, which will now debut in early 2011. (2)

GSM Struggles

Having seen success in the emerging markets with its GSM based mobile phones, Nokia tried to repeat the effort in developed markets as well. However, the majority of telecom operators (Verizon, Sprint) in the US use the CDMA network, and hence Nokia’s GSM-based phones were not compatible with these telecom operators.

Nokia’s Share to Decline in Developed Markets

We estimate that developed markets constitute around 17% of the $12.44 Trefis price estimate for Nokia’s stock. We believe that Nokia will continue to struggle to stand its ground amid the onslaught of competitors in these markets, and project a decline in the company’s market share from around 27% in 2009 to under 20% by the end of the Trefis forecast period.

You can modify our forecast above to see how Nokia’s stock value would be affected if its share in the developed markets were to revive.

You can see the complete $12.44 Trefis Price estimate for Nokia’s stock here.

Notes:

1) The Wall Street Journal: After Delay, Nokia Ships New Smartphone

2)?The Wall Street Journal: Nokia Delays E7 Smartphone Release

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