Nokia (NOK) is by far the largest handset company in the world with a market share of 38%. It is strange that since the beginning of the year its stock has underperformed RIM (RIMM), which is up 100%; Apple (AAPL), which is higher by 70%, and even lowly Motorola (MOT),which has jumped 45% despite the fact that it is losing money and market share at an alarming rate.
Nokia’s stock is flat since the beginning of January.
Nokia has launched its own line of smartphones to compete with the iPhone and Blackberry. The flagship product, the N97, has gotten modestly good reviews. Nokia certainly has leverage with carriers since it is the primary supplier to most large cellular companies in every region of the world and has been gaining market share in the US.
The Wall St. concern about Nokia is not that it will fail to get its piece of the smartphone pie. Investors are worried that the Nokia line of products will continue to be dominated by the inexpensive, low margin phones that it sells in the developing and underdeveloped parts of the world. Nokia’s handset volume is so large that even a successful line of smartphones and a large software app stock to challenge Apple’s cannot make up for the price pressure at the low end of its product line, pressure that is being exerted by Samsung and LG.
Nokia could even pass Apple in the smartphone race. It is not a big enough business to substantially change Nokia’s margins.
Douglas A. McIntyre
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