Why Nokia Keeps Slip-Sliding Away

Nokia (NYSE: NOK  ) is still the worldwide leader in cell phone sales, but you wouldn't know it from the company's American exploits.

Second-quarter sales for the Finnish giant came in at $12.8 billion, roughly flat year over year and quarter over quarter, whether you adjust for currency fluctuations or not. That's despite growing unit sales at a respectable clip: Nokia shipped 8% more handsets in general, and 42% more smartphones in particular, year over year.

However, those sales took place mostly in emerging markets where phones are cheap, and average selling prices took a serious hit. Nokia's smartphones are getting particularly inexpensive. That's bad news for the bottom line, where earnings shrank 27% from last year.

North America is Nokia's smallest market, any way you slice it. Even Latin America shifts more Nokia phones than the normally more robust U.S. and Canadian markets. So when Nokia sells $4.4 billion worth of smartphones and netbooks, they're all going to places like China, the rest of Asia, and Europe while Research In Motion (Nasdaq: RIMM  ) , Apple (Nasdaq: AAPL  ) , and the Android consortium slice up the American high-end market between them.

Nokia CEO Olli-Pekka Kallasvuo seems to have given up on making inroads here, even: "The global handset market has continued to grow at a healthy pace, led by some of the less mature markets where Nokia is strong." That's what passes for market optimism at Nokia these days.

And management's assumptions for the rest of the year sound pretty bleak, too. Global unit share of the cell phone market is expected to stay flat at about 35%, but the revenue share will decline. (Translation: "Our stuff is getting even cheaper.")

Moreover, the Nokia Siemens telecom infrastructure business Nokia runs in tandem with Siemens (NYSE: SI  ) was supposed to grow market share this year -- but not any more. The forecast has been reduced to simply defending the slice of pie already on that operation's plate. That's good news for Ericsson (Nasdaq: ERIC  ) , Huawei, and Alcatel-Lucent (NYSE: ALU  ) , I suppose.

I used to believe that Nokia was too big to fail. I thought the global market leader would surely find a way to fight back against a rising tide of smartphone rivals. I'm not so sure anymore.

Until Nokia stops settling for easy, low-margin sales in Belize and Ghana, and goes after higher-margin opportunities in the developed world, I see a hollow future for the company. What happens when the "emerging" markets become mature, and every grandma in the Amazon jungle already has a cheap cell phone? Nokia's guaranteed growth stops -- and there's no viable upmarket strategy to replace it.

Maybe it's time for Olli-Pekka to step aside and let some hotshot visionary lead Nokia into a new light. What do you think? Tell us in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. Nokia is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.


Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 28, 2010, at 3:43 AM, StockgeniusII wrote:

    Nokia seems to have forgot about the high end smartphone segment. It too bad that only a few years ago; the stock price was in the $40 and now it is $9! Apple stock was $14 and now it $260! A majority of the share price is transferred from Nokia.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1243463, ~/Articles/ArticleHandler.aspx, 10/22/2014 10:17:02 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement