Nokia Targets Low-End Markets

Zacks Equity Research
June 8, 2012

In a bid to regain some lost ground in emerging markets, Nokia Corporation (NOK) decided to expand its low-end touch screen device portfolio with three handsets. The three sets will be called Asha 305, Asha 306 and Asha 311 priced at €63, €68 and €92, respectively.

Asha 305 is expected to be shipped this month while the other two will hit the market in the second half of 2012. Looking at the growing popularity of touch screen phones, Nokia integrated its new low-end Asha series of handsets with a swiping screen interface (currently being used in Nokia's old S40 smartphones).

These low-end dual-sim feature phones have done extremely well for Nokia in the past few quarters, especially in the emerging economies of India and China. However, in the last quarter of 2012, feature phone volume decreased 16% to 70.8 million units. Mobile device volume fell by 62% in China alone compared with an overall decline of 24% globally.

The decline in device volume sales was mainly due to the availability of low cost smartphones from Samsung and ZTE. Another factor that affected the sale of Nokia handsets in China was the change in distribution policy by the Chinese government. The Chinese government has forced local telecom companies to offer handsets at subsidized rates to the subscribers, thereby protecting the local vendors and customers from paying a high price to foreign mobile phone manufacturers. This regulatory measure implemented by the Chinese government is increasing price wars in the country.

Therefore, Nokia is taking a two-pronged approach to alleviate some of the pressure it is under. The first is a focus on relatively low-end touch-screen feature phones. The second is a tie-up with Microsoft Corporation (MSFT) to adopt the latter’s Windows Phone 7 operating system in its handsets.

While Nokia’s measures are commendable if long overdue, the success of the initiatives remains to be seen. Asian players are very competitive and have captured significant mindshare. So regaining share from them wont be easy. On the other hand, the new Window-based Lumia handsets have been slow to take off. Therefore, there is a good bit of uncertainty regarding Nokia’s fortunes over the next few years.

Currently, Nokia has a Zacks #5 Rank, implying a short-term Strong Sell rating on the stock.

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