NOK: Nokia Looks Good By Comparison in Lousy Handset Market

From William Trent, CFA of Stock Market Beat

Motorola preannounced but still disappointed, Research in Motion (RIMM) and Palm (PALM) dueled sob stories about smartphone prices, and altogether cellphone makers have been working to prove us right.

As I said a few weeks ago, the performance in our Mobile Devices business in the first quarter was unacceptable, and we are committed to restoring it to profitability and positive cash flow.

(Excerpt from full MOT conference call transcript)

By contrast, Nokia said:

Olli-Pekka Kallasvuo

Thanks, Bill. Good morning and good afternoon, ladies and gentlemen. Nokia had a solid first quarter.

(Excerpt from full NOK conference call transcript)

If there is any indication that the handset market is slowing down, it is Nokia calling 4% year/year growth “solid.” What they mean is, “at least we aren’t in the gutter like some others we know.” Still, a caller pointed out Nokia’s weakness in the U.S. market:

Richard Kramer – Arete

You really didn’t address fully the question previously on the U.S. market. I think a year or so ago when you came on as CEO, you mentioned you were going to spend a week or so out of every month in the U.S. We continued to see units decline year on year. Can you give us some sort of prognosis, when and if the U.S. might turn around for Nokia, and what might spark that happening?….

Olli-Pekka Kallasvuo

I will start with the second question and then I will move on to this turning up the heat matter. If you look at the U.S. market and I simplify a bit, if you allow that, in order to make the point. So in China, we do have about 1.3 billion customers — or potential customers — meaning the consumers in that market. In the U.S., we have four — and I’m not talking about billions here. Four customers. In that way, at the moment because of the operator dominance in the channel, you need to look at each of these customers separately. You have, in this way, one dimension only looking at this situation. So there we have to look at obviously, Verizon Wireless, Sprint Nextel, AT&T, and T-Mobile, the four customers that really are very, very important in the totality.

(Excerpt from full NOK conference call transcript)

That certainly cleared things up. For all the tea there may be in China, the handset customers tend to be buyers of low-end models. One of the big problems for handset makers is the shift to the low end, and the impact that has on margins. And all of the device makers are going to need a better answer for it.

Disclosure: Author holds put options on Research in Motion (RIMM) at time of publication.

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