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Nokia’s Sorry Story: Resurgence? (Part 2)

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In part 1 of this series, we saw where Nokia’s current troubles are rooted. Poor Olli-Pekka Kallasvuo had to pay with his job just so that Nokia could get a non-Finnish CEO on board. And OPK wasn’t the only one that left. After being given the cold shoulder for the second time, Anssi Vanjoki quit Nokia as well. He was one of the most well respected Nokia personnel. The shareholders might be feeling better, considering they are the ones that called for OPK’s head. But what about the bloggers? They still say that the Symbian^3 user-interface is years behind the competition. Engadget, in its N8 review, showed the device some tough love and gave it a rating of 5/10.

In this part, we will continue to discuss Nokia’s share price, and the relation of its share price with its US market share. If you thought Nokia’s share price has been falling with its falling US market share, get ready for a few shockers!

Nokia’s share price – (Image Source)

Nokia’s troubles (seemingly)

Let us start by reiterating what we have been saying all along. Nokia’s troubles do not lie in its old UI. People are still buying Nokia’s phones by the cartloads, bad UI and all. Nor do its troubles lie in a sagging market share. At 41% of the world smartphone market share, Nokia is still the most dominant player. The N8 might have received a low rating by a major blog, but it will still sell more units than the iPhone 4 can ever hope to. Sales are not Nokia’s problems.

The problems, like we mentioned in yesterday’s conclusion, lie in the US. There are two major problems there, both related to each other: Falling market share and stubborn telecom operators. So while Nokia performs well in the rest of the world, its US shareholders see its failure in their region. And they start to doubt their investment.

The problems also lie, to a major extent, in Nokia’s falling profit margins.

The road ahead

(Image Source)

So how does Nokia win back the confidence of its US investors? Getting Stephen Elop on board is just one small step in that direction. Nokia still has a long way to go.

Changing the perception of Symbian in the minds of the US population is asking for a little too much. They are already over-burdened with Android, Blackberry OS, iOS and, soon, WP7. Considering they already hate Symbian, Nokia will need to invest more than it might be willing to, to turn Symbian’s fortunes around.

Sure, the E7 and N8 will do Nokia a lot of good in the US. The E7, especially, will sell well because of its unique hardware. The only hurdle might be convincing people that the E7 is better than its similar looking predecessor – the N97. Once Nokia manages to do that, the E7 will be its trump card in the US.

But what it really needs to do is get Meego on road as soon as it can. Never before have US bloggers awaited any Nokia product more eagerly than Meego. With Meego, Nokia has an ace up its sleeve. All it needs to do now is play it well.

Will market share really, REALLY, help?

Let’s go back to Nokia’s share price history.

November 2, 2007 – Nokia’s share price hits a high of $39.7.

June 25, 2010 – Nokia’s Share price hits a low of $8.25 points.

What changed in between? Nokia’s US market share?

Let’s assume Nokia plays its ace – Meego – Well. Let’s assume that Meego OS becomes the next big thing, and puts iOS and Android to shame. Let’s assume that Meego OS helps Nokia regain plenty of market share in the US.

How much market share does Nokia need to gain some respect in the eyes of investors? Note that we are currently assuming Nokia’s share price depends only upon its US market share, which is, of course, not true. But that is what many analysts have concluded before. So we’ll roll with it. Get ready for a shocker.

Going back to the N95 era, what was Nokia’s market share in the US? Well, surprise, surprise! In December 2007, it was about 10%. That’s it… only 10%. Yet its share price in December 2007 was close to $40. Its market share today is not much lower. Yet its share price has taken a beating.

Here’s another surprise: In 2002, when its market share in the US was at its highest – close to 28% – its share price was not much higher than today!

Wait…what? Market share doesn’t matter? Then what does?

Two factors mainly affected Nokia’s share price in 2008. First was the growing challenge from Apple and Google. Investors saw both these as a major threat to Nokia, and also as better companies to invest in. Second was the failing of Nokia Siemens Network. Let’s not forget that NOK also consists of NSN. It has been facing losses year after year, probably one of the reasons for investors to lose faith in Nokia. A third, non-trivial, factor was the recession. But Nokia’s share price has failed to correct itself, even as the rest of the handset manufacturers moved on.  And a fourth factor was Nokia’s decreasing profit margins. To continue selling the volume of phones that it did, it had to slash the prices of many of its top models, including the N97. It eventually ended up retaining its market share by selling a lot of low cost smartphones.

Where is Nokia’s share price headed?

Buy or sell? The question that will haunt any investor. For Nokia, this is not a difficult question to answer: buy! Why? There are a host of reasons – Symbian^3 phones, Meego, NSN turning profits…All these will ensure that Nokia will continue to rake in the green for quite some time now. The richer Nokia gets, the higher its share price is going to go.

We have already noted Nokia’s real problems – decreased profit margins, NSN turning losses, falling mindshare among analysts. All of these are about to change. And about Nokia’s US market share – we have already seen that doesn’t matter. So even if the latest line-up of Symbian^3 phones and the upcoming Meego phones fail in the US, everything will be just dandy so long as Nokia does well in the rest of the world.

In the short term, Nokia’s share price might not progress much. But once all three factors mentioned above come into play, and Nokia’s profits start to surge, rest assured that Nokia’s share price is going to return to its glory days.

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1 Comment

  1. TY, nice job! Just the stuff I had to know.

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