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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SAP Tags $60 Stock Price By Hanging On To CRM Market Share

Big upside ahead

SAP stills holds the number one position in customer relationship management (CRM) software market with an estimated share of around 23%. (1) However this share has declined gradually due to increased software-as-a-service (SaaS) offerings from companies like Advanced Micro Devices, Salesforce.com and Oracle.

While we expect SAP’s share to decline to 18% by 2017, the Trefis community predicts flat market share in the 22% to 23% range, corresponding to an upside of 5% to our price estimate for SAP’s stock.

We currently have a Trefis price estimate of $57.49 for SAP’s stock, about 15% above the current market price.

Increasing Adoption of SaaS

Companies like Salesforce.com and Microsoft have increased their SaaS offerings which work on the on-demand principle. With SaaS, enterprises can license only the amount of software required versus the traditional way of procuring the license per device. The service is provided through the Internet and the actual data and IT infrastructure resides with the host rather than the client. Hence the client does not need to bear extra cost of infrastructure and can also start using the solution immediately. SAP has also been slow in adoption of SAP Business ByDesign, a SaaS offering.

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Positive Results from Oracle’s Acquisition of Siebel

Oracle acquired Siebel in 2006 for its CRM offerings. Oracle could not immediately benefit from this acquisition due to the time required for the expected synergies to fall in place and struggled to increase its market share. We expect that Oracle would now be in a position to start benefiting from Siebel’s acquisition, adding another threat to SAP’s supremacy in the CRM market.

Trefis Community Forecast

The Trefis community forecasts that SAP’s market share in customer relationship software will remain within a range of 22% to 23% through 2017, compared to the baseline Trefis estimate of a decrease from 21% to 18% during the same period. The community estimates imply an additional 5% upside to the Trefis price estimate for SAP’s stock, which is already roughly 15% ahead of market value.

Our complete analysis for SAP’s stock is here.

Notes:

1)Estimated based on data from Gartner Research

Trefis members constitute more than tens of thousands of users of the Trefis platform, inclusive of investors, financial analysts, and business professionals who use the Trefis platform to create their own models and price estimates.

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Motorola Wages Uphill Battle To Gain Share Against Apple, RIM

Tough fight on MOT's hands

The mobile phone industry is a highly competitive industry with players like Motorola, Apple, Research in Motion and Nokia each fighting for market share. We believe that Motorola’s declining market share, ^[] coupled with potentially greater marketing expense, could produce downside to our $8.30 price estimate for Motorola’s stock.

We estimate that Motorola generates roughly 29% of its stock value from mobile phones. Motorola’s mobile phones have benefited from notable support from Verizon in the recent past, with Verizon reportedly spending $100 million on an ad campaign for Motorola’s first smartphone Droid in 2009. ^[]

However, the situation could change once Apple’s iPhone launches on Verizon’s network, which could occur as early as Q1 2011. Not only could Motorola incur greater marketing expenses, but its already dwindling market share could come under more pressure from increasing competitive dynamics.

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Gauging the Impact of Market Share Loss

Verizon has openly supported Google’s Android operating system, as Apple has an exclusive contract with AT&T for Apple’s iPhone. Motorola has been the leading manufacturer of mobile phones on the Android platform this year, and is aiming to launch over 20 smartphones in 2010. ^[]

Verizon’s support for Android could soften as it gears up for the potential iPhone launch, putting downward pressure on Motorola’s market share. More importantly, Motorola would likely incur higher marketing expenses in an effort to sustain its market share.

Motorola’s selling, general, and administrative (SG&A) expense as percentage of gross profits is expected to decline from a peak of 51% in 2007 to 41% in 2010, ^[] and could continue to decline to around 31% by the end of Trefis forecast period.

However, as Motorola is forced to spend more to promote its smartphones on Verizon, our base case SG&A estimates could prove conservative. There could be a downside of more than 15% to our price estimate if the company’s SG&A expense as a percentage of gross profits remains constant at 41% through the Trefis forecast period, instead of the decline that we currently forecast.

Increasing marketing spend is also no guarantee to Motorola’s ability to sustain market share. Motorola could face higher competition once the iPhone launches on Verizon as Verizon’s loyal users might choose to trade in their Motorola phones for an iPhone. Motorola’s market share is expected to decline from a high of 22% in 2006 to 2.8% in 2010, ^[] and could continue to decline to 1.6% by the end of Trefis forecast period.

There could be a downside of around 8% to our price estimate if Motorola’s market share drops to 1% by the end of our forecast period.

Should these two scenarios materialize, there could be a potential downside of roughly 25% to our $8.30 price estimate for Motorola stock.

You can see the complete $8.30 Trefis Price estimate for Motorola stock here

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MetLife Eyes $50 Per Share If Investment Returns Pick Up

MetLife has room to grow

MetLife is one of the largest provider of life insurance in the U.S. with about 6% market share of the U.S. life and health insurance industry. MetLife competes with other established insurance providers like AIG, The Hartford and New York Life. We have a price estimate of $47.67 on MetLife, which is around 17% ahead of the current market price.

Life and health insurance is MetLife’s primary business division which accounted for about 50% of its total revenues in 2009. MetLife also provides retirement annuities and property and casualty insurance such as auto insurance and home insurance. Apart from insurance policies, MetLife also earns revenues from investments of insurance policy premiums.

So we ask our readers, “How Much of MetLife’s Stock Value Comes from the Investment of Insurance Premiums?”

A. 8% B. 16% C. 24% D. 36%

Choose one of the above to see the correct answer.

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Investment of Insurance Premiums

Insurance companies receive premiums from the policy owners up front and then hold onto them until claims arise that they need to pay. This is often referred to as “float” and is why Warren Buffett loves owning well run insurance companies. While insurance companies hold this money, they often invest it and assuming they are earning an underwriting profit, they are essentially holding this money for free or being paid to hold this money. The difference between what insurance companies earn from underwriting and what the policies cost (how much they have to pay) is the underwriting gain or loss.

Given how competitive insurance rates are, insurance companies depend heavily on these investment returns and many find it difficult to meet its liabilities and remain profitable otherwise. In other words, insurance companies earn very little–and some operate at underwriting losses–in the hopes of earning more on the investments to cover these losses. The majority of these investments are in fixed income securities like government and corporate bonds and the remainder in equity securities, mortgage loans, policy loans and other investment securities.

MetLife has about $230 billion invested in fixed maturity securities as of year-end 2009.

The chart below examines the impact of changes in total fixed maturity investments on MetLife’s stock value. Growth in its investments depend on 1) growth in insurance policies and premiums 2) higher returns on invested portfolio. An aging U.S. population and the economic recovery will boost sales of insurance policies and could push premiums higher. Thus, we forecast an increase in investments.

Sensitivity to Yields

In addition to a growing asset base, MetLife’s return on fixed income investments is a crucial driver of its value. Interest rate on fixed maturity securities is the most important factor driving the return on fixed income investments. High interest rate leads to high returns and vice-versa. But a long period of high interest rate can adversely affect the company. The policyholders may surrender their contracts in a rising interest rate environment, requiring the company to liquidate fixed income investments in a loss position. Thus, we forecast a modest increase in MetLife’s return on fixed income investments.

Downside Scenario

If MetLife’s yield on fixed maturity securities were to stabilize at 2009 levels of about 4% beyond 2011 while its fixed investment assets remained flat, the Trefis price estimate would decline roughly 5% from its current value of $47.67. Also, the contribution of income from investment of insurance premium to MetLife’s stock value would become roughly 20% from its current value of 24%. A corresponding decline in operating margins to 7% beyond 2011 (from an estimated 8% in 2011) would create an additional 5% downside, dropping the contribution from investment of insurance premiums to only 16% of the company’s stock value.

See our full estimates for MetLife here.

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AMD Stock Price Sensitive To Intel Market Share Theft

Stands to gain nicely from market share steals

Intel dominates the notebook processor market with an estimated 86% market share while AMD controls almost 14% by our estimates. ^[] We currently have a Trefis price estimate of $25.53 for Intel’s stock and a price estimate of $8.07 for AMD’s stock.

While Intel dominates, competition is becoming more intense with each company rolling out newer integrated computing and graphics platforms. At the core of this is a fight for market share.

We forecast market share remaining stable for both currently but note that a hypothetical 5 percentage point increase implies 2.5% upside in our share price estimate for Intel and 11% for AMD. So the little guy clearly has more to gain. See our modifiable charts below.

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In September 2010, Intel launched its second-generation core architecture, Sandy Bridge, a 32-nanometer chip that can put CPUs and GPUs onto a single piece of silicon designed for tasks like handling high-definition video.

Intel management immodestly called Sandy Bridge the largest increase in computing performance in its history and places high expectations on its business impact. ^[] The company began large-scale production this past quarter and expects to start earning revenues on these shipments in Q4 2010.

In response, AMD introduced Llano accelerated processing unit in October 2010, a part of the company’s Fusion initiative. Some of tasks carried out by Llano include calculating the value of Pi to 32 million decimal places and decoding HD video from a Blu-ray disc, as claimed by AMD. ^[] Production is slated for earlier next year after rumors of some delays.

While performance tests for both have been good so far, we won’t see the data on a large scale until next year. So until then, who do you think will gain share?

Our complete analysis for Intel’s stock is here.

Our complete analysis for AMD’s stock is here.

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AMD Stock Price Sensitive To Intel Market Share Theft

Stands to gain nicely from market share steals

Intel dominates the notebook processor market with an estimated 86% market share while AMD controls almost 14% by our estimates. ^[] We currently have a Trefis price estimate of $25.53 for Intel’s stock and a price estimate of $8.07 for AMD’s stock.

While Intel dominates, competition is becoming more intense with each company rolling out newer integrated computing and graphics platforms. At the core of this is a fight for market share.

We forecast market share remaining stable for both currently but note that a hypothetical 5 percentage point increase implies 2.5% upside in our share price estimate for Intel and 11% for AMD. So the little guy clearly has more to gain. See our modifiable charts below.

Special Offer: Jim Oberweis bought Baidu at $7.90, earning readers huge profits. Click here for more recommended stocks in the?Oberweis Report.

In September 2010, Intel launched its second-generation core architecture, Sandy Bridge, a 32-nanometer chip that can put CPUs and GPUs onto a single piece of silicon designed for tasks like handling high-definition video.

Intel management immodestly called Sandy Bridge the largest increase in computing performance in its history and places high expectations on its business impact. ^[] The company began large-scale production this past quarter and expects to start earning revenues on these shipments in Q4 2010.

In response, AMD introduced Llano accelerated processing unit in October 2010, a part of the company’s Fusion initiative. Some of tasks carried out by Llano include calculating the value of Pi to 32 million decimal places and decoding HD video from a Blu-ray disc, as claimed by AMD. ^[] Production is slated for earlier next year after rumors of some delays.

While performance tests for both have been good so far, we won’t see the data on a large scale until next year. So until then, who do you think will gain share?

Our complete analysis for Intel’s stock is here.

Our complete analysis for AMD’s stock is here.

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The India market share loss could cost Nokia 20 %

IDC recently came out with a report on market share of Nokia in India indicating part of Nokia, which mobile phone handsets has decreased from 54% in 2009 to 36.3% in the second quarter of 2010. Nokia, however, refute these claims arguing that IDC do not count shipments from its plant in Chennai ^[]. The India is the second largest market after China for Nokia in emerging markets. If the IDC claims are true, and continues this steep decline in market share, it may be a disadvantage for the Trefis price estimate $12.33 for Nokia stock.

Potential drawbacks of Nokia stock

Has a few months, we discussed how Nokia is slowly losing its dominant position in the Indian market of mobile phones.Article of IDC not only reinforces this point, but also indicates that market share declines are much larger that had originally been thought.Our estimates indicate that Nokia sold approximately 60 million phones in India in 2009, a total of 300 million sold in markets émergents.Cela implies that about 20% of Nokia emerging market sales come from single India, which makes it a major enterprise .Rapport IDC India sales declining market suggest that share of Nokia on the larger emerging markets may also refuse to usefully.

We believe that the market shares of Nokia in emerging markets (India, Brazil and China) will decrease by 40% in 2009 and 34% at the end of the forecast period Trefis.

If, however, the market share decreases at a faster rate to 20 per cent by 2016 to 34% that we currently forecast, it could a 20% reduction for the Trefis price estimate $12.33 for Nokia stock.

Factors behind this rapid decline

Nokia is in competition with Apple and Research in motion market high-end mobile phones and with LG, Samsung and Sony telephony market mobile value.However, the emergence of local actors in India asked a more difficult competitive threat to enterprises of Nokia.Nokia has been losing a part of new Indian mobile companies such as Micromax and Spice Mobile Karbonn mobile because she neglected popular trends in the Indian market of mobile phones.Nokia has also been slow to identify popular features such as dual SIM card phones and networking sociales.Dans applications simultaneously, competitors have invested massively in advertising campaigns that have helped to grow rapidly.

Enough dual SIM cards:In recent years, many Indian consumers have begun to maintain multiple accounts mobiles.Les reasons include costs and the need for different phone numbers for official purposes and personnelles.En result, combined with dual SIM card capacity have become very popular.Nokia has shifted its competitors together card double SIM market handsets.

Limited social networking capability:Aboriginal youth were early adopters and enthusiasts of social networks mobile.Nokia was late to enter the arena of networking social.En revenge, rival Samsung has increased its share of market in large part due to the success of its popular Corby phones which include extensive social networking functionality.

You can see the full $12.33 Trefis Price estimate of Nokia stock here.

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