Will Nokia Rise as Apple Falls in India?
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While India has one of the largest middle classes in the world and the second most people of any country, an iPhone from Apple (NASDAQ: AAPL) might not be the coveted status symbol that it is in China or Brazil. Growth for Apple in India, as indicated in the most recent earnings call, remains weak. While Apple's Chief Executive Officer sees this as an area of tremendous growth for the company, Nokia Corporation (NYSE: NOK) might be the mobile phone company gaining the most from the market potential in India.
About India, Apple CEO Tim Cook stated that, “Apple has some higher potential in the intermediate term in some other countries. This doesn’t mean we’re not putting emphasis in India. We have a business there and it’s growing but my own perspective is that in the intermediate term there will be larger opportunities outside (the country).”
The Indian market is daunting, even though it was the fastest growing mobile market device over the last year. There is not a single Apple store in the country of 1.22 billion peple, unlike China. Purchasing an iPhone has to be transacted through local carriers such as Bharti Airtel. Due to inconsistent and limited 3G and 4G penetration in India, owners of iPhones cannot come close to "going up to 11."
Due to these limitations, there is currently a preference in India for feature-phones. (According to Wikipedia, "A feature phone is a mobile phone which at the time of manufacture is not considered to be a smartphone , but nevertheless has additional functions over and above standard mobile services. It is intended for customers who want a lower-price phone without all the features of a smartphone.")
Exit, stage right: billions of emerging market consumers in India and other countries.
While the smartphone dominates in the "developed" countries, emerging market nations like India still prefer the more basic model of a feature-phone. From a study of mobile market penetration through the fourth quarter of 2011 by Vision Mobile, a research firm: "In the North American and European markets, smartphone penetration is the highest, with 63% and 51% market share, respectively; (In the emerging markets, smartphone penetration is much lower) in the Asia-Pacific region (19%), Africa/Middle East region (18%) and Latin America (17%)."
There are more than 3 billion people who do not have a mobile phone; with almost three-quarters of those who do now using "feature-phones." It would seem plausible that the first purchase would be a "feature-phone" rather than an iPhone 5. At present, feature-phones account for over 90% of the mobile market in India.
This will not change significantly in the near future for a variety of factors. India is corrupt, so any progress in wireless communications will be painfully slow. There is a low per capita income. The 3G infrastructure in the country is inadequate with no Pan-India service Plan.
The most obvious question here is why did that not work for Nokia in China? While Apple is expanding in the People's Republic, Nokia is shutting down facilities. Basically, it did not work anywhere else as well as needed as Samsung supplanted Nokia as being the world's largest seller of mobile phones earlier this year.
India produces many fine engineers, so the network infrastructure will improve for smartphones and feature-phones. One of the largest markets in the world for gold, Indians are as open to status symbols as any others. As to the Indians being very cost conscious, if that was the case than the Nano from Tata Motors (NYSE: TTM) would have sold better. The Nano was touted as being the world's cheapest car, which would take the middle class around the world, particularly in India, "...from two wheels to four."
But it was a huge flop for Tata Motors: according to one rival Indian automobile executive, "Nobody wants to be seen driving the world's cheapest car." This particularly holds true for mobile phones. As Israel Ganot, the founder of Gazelle, an electronics recycler, notes, "There is insatiable demand for iPhones outside the U.S., mostly in emerging markets." Richard Cohen, author of "The Fish that Ate the Whale: The Life and Times of America's Banana King," wrote about this, "Its an old economic principle: If you want to draw a crowd, charge a ridiculous price. In the end people value what they can't afford."
Nokia certainly needs to succeed in India. The company is losing billions with the stock price down 38.12% for 2012. Microsoft has done little to engender investor confidence in its partnership with Nokia. Triumphing in India over Apple would be a huge victory for Nokia. The stock price has soared in recent trading, up 46.81% for the last month of market action. Topping Apple and Samsung in India would keep the rally surging for Nokia Corporation.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.