Five Reasons Why Nokia Could Rebound Like Sprint
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With the rollercoaster ride of Nokia Corporation's (NYSE: NOK) share price recently, memories surface of the same transpiring with Sprint-Nextel (NYSE: S) less than a year ago.
Hoping to pre-empt the launch of the iPhone 5 by Apple (NASDAQ: AAPL), Nokia just introduced its two new smartphones, the Lumia 820 and the Lumia 920. Due to the lack of information regarding critical features such as what country would receive the smartphones, who the carriers would be, and at what price levels would the products be offered, Nokia and its shareholders were punished as the stock fell that day in trading by 15.90%. The exact same response bedeviled Sprint-Nextel after a poor performance at a press conference last October. After its dismal performance, not only did the share price fall for Sprint-Nexel (chart below), it was immediately downgraded by three investment firms.
But, like Sprint-Nextel, Nokia Corporation is allied with a far greater force in the smartphone sector. Sprint-Nextel has rebounded due to its partnership with Apple. Nokia's hopes are tied to Microsoft (NASDAQ: MSFT).
In staging a press conference for the trade press before the iPhone 5 launch on September 5, Nokia Corporation was demonstrating for all a classic case of "the triumph of hope over experience." No one does a better new product introduction than Apple, while for Nokia, the Lumia 900 introduction over Easter Weekend was an unmitigated disaster with the share price falling as a result as shown by the chart below.
However, there are five major reasons why Nokia could reverse its current price fall and rebound as has Sprint-Nextel, which is up more than 100% for 2012.
The first is that the Windows operating system is projected to expand in market share more than any other. The Android system from Google is expected to decline the most. That is why Samsung is reported to be looking at the Blackberry 10 from Research-in-Motion (NASDAQ: BBRY). Even with the manifold weaknesses of Research-in-Motion, Samsung needs to look beyond the Android, particulary after its recent loss in the Apple v Samsung court case. The table below lays out the findings from the research of the International Data Corporation.
Worldwide Smartphone OS Market Data
|
Smartphone OS |
2012 Market Share |
2016 Market Share |
2012 - 2016 CAGR |
|
Android |
61.0% |
52.9% |
9.5% |
|
Windows Phone 7/Windows Mobile |
5.2% |
19.2% |
46.2% |
|
iOS |
20.5% |
19.0% |
10.9% |
|
BlackBerry OS |
6.0% |
5.9% |
12.1% |
|
Others |
7.2% |
3.0% |
-5.4% |
|
Total |
100.0% |
100.0% |
12.7% |
Next is the popularity of feature phones from Nokia. At present, Nokia still sells the second most mobile phones in the world. Earlier this year, it was ranked #1 before being supplanted by Samsung. Nokia feature phone sales are still very desirable in countries such as India and Indonesia, where there is not the infrastructure needed to support smartphones.
The third reason is that more in emerging market countries such as India and Indonesia will be able to afford mobile phones. According to a recent study by McKinsey & Co., a global consulting firm, spending by the emerging market consumer class will rise to $30 trillion annually by 2025. That will be half the total consumer spending in the world. More will be able to afford feature phones, but not the iPhone 5; or the expensive data plans that come with smartphones.
Along with the increase in consumer spending by the burgeoning middle class in emerging market nations, many more will be living in urban areas. That is the strength of mobile phone networks. It is much easier to service a concentrated city than a sparsely populated rural region. The more living in cities, the more buying mobile phones across the spectrum.
The last reason is that it is easier for companies at the lower levels of a sector to move up with new products than it is for the elite to begin to offer stripped-down versions at cheaper prices to the masses. The car industry demonstrates this: Toyota started off selling economical cars before introducing the Lexus. The same with Volkswagen and The Beetle. But efforts by BMW, Mercedes, Cadillac and Maserati to sell cheaper models to a broader class of consumers have all flopped. It should be able easier for Nokia to sell more advanced smartphones than it will be for Apple to market a low cost version of the iPhone, if it would even choose to go that route.
As the chart below reveals, the share price of Nokia and Sprint-Nextel have had an inverse trading relationship over the past year. In the near term, with the iPhone 5 coming out and Nokia being pounded due to it most recent new product introduction debacle, that pattern should continue.
There are not many reasons to be bullish about Nokia at the present: the share price is down double digits for the last week, quarter, six months and 52 weeks of market action. Year to date, Nokia is off by 46.64%. The company is losing money with a negative profit margin of 12.77%. But there are five reasons as to why the share price could rebound as has happened with Sprint-Nextel, which was in much the same position just last autumn as Nokia is now.
Fool blogger Jonathan Yates does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, 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.
