According to a recent IDC report, the mobile phone market continued its recovery with about 22% growth in the first quarter of 2010. Nokia (NYSE:NOK) maintained its position as the number one vendor, but its market share declined to 36.6% from 38.4% last year. Let’s take a closer look.
Nokia recently reported its first quarter results. Its mobile device unit shipments were up 16% to 107.8 million driven by the success of its models 5230, 5800, 5530, and X6. Shipment of converged mobile devices, including smartphones and mobile computers, grew 57% to 21.5 million units. However, average selling prices for converged mobile devices dropped to €155, compared to €190 last year and €186 last quarter. Nokia has recently launched N8, its first converged device to run the Symbian 3 operating system, which is expected to compete with iPhone 4G. Nokia expects to start shipping the phone in the third quarter at a cost of €370 and expects it to boost overall ASP.
Smartphones have been a major source of growth in the mobile phone industry. This is highlighted by the entry of RIM, a smartphone maker, in the top 5 mobile phone vendor rankings. It displaced Motorola from the top 5 list. RIM, with shipment of 10.6 million units, has 3.6% share in the mobile phone market and 19.8% in the smartphone market. Apple, which recently reported shipment of 8.75 million iPhones, up 131%, should also follow RIM into the top 5 list if it continues growing at this rate.
In my most recent post on Nokia, I observed that the company was faring poorly in the United States owing to poor carrier relationships. Palm could have been a worthy acquisition to beef up Nokia’s presence in North America, but with HP acquiring Palm, Nokia has lost its opportunity. Its North America sales continued to decline in the quarter by 21% to 2.7 million from 3.8 million last quarter. However, the Middle East & Africa, Latin America, and Greater China posted strong double-digit growth. Apple, on the other hand, reported triple-digit growth rates in Asia Pacific, Japan, and Europe.
Nokia has long been strong outside the United States, and it has a mammoth share of the worldwide mobile phone market. There are lessons to be learned from how Nokia has established itself in emerging markets. This Wall Street Journal article highlights how Nokia is targeting the rural market in India. Over the past decade, Nokia has captured nearly 60% of India’s $5.6 billion handset market, of which about 25% are rural consumers. Nokia set up a manufacturing facility in India in 2006, which allows it to manufacture and sell low-cost phones. It also adapts its phones to suit the local conditions. To further increase its popularity, the company has increased its number of customer care centers and caters to rural India with vans staffed with sales reps. It has also introduced social innovations such as access to crop prices, weather forecasts, and English lessons.
However, competition is catching up even in the emerging markets and to capitalise on its first mover advantage, Nokia is banking on such innovations and differentiators. It recently teamed up with an Indian bank to launch an m-commerce platform in India after buying a minority stake in mobile financial services supplier Obopay last year. Through the service, people can transfer money to other people just by using their mobile phone. I expect that n rural areas where access to banks is limited, this initiative will be a major differentiator. My interview with the CEO of Obopay is here.
Total revenue in the first quarter was up 3% to €9.5 billion. Operating profit increased 787% to €488 million. The company ended the quarter with liquidity of €9.7 billion. It recently acquired MetaCarta, which has expertise in geographic intelligence solutions and Novarra, a provider of mobile browser and services platforms.
For the second quarter, Nokia expects its Mobile Devices sales to be €6.7 billion to €7.2 billion. It expects industry mobile device volumes to be up 10% in 2010 and aims to maintain its share at 2009 level. The stock is currently trading around $12 with a market cap of about $44 billion. It hit a 52-week low of $11.93 on April 28.
I own the stock and am holding on to it for a specific reason: Nokia’s emerging market strategy is very strong, and as smartpones infiltrate the emerging markets – and they will –Nokia still is one of the best players to capitalize on the trend. The experiments with Obopay are good leading indicators in this direction.