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Nokia Thoughts

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By TaysPop
January 10, 2001

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Doug said in post #9284:

Anybody looking at Nokia today??

I'm always looking at Nokia :) ... but I usually do it with my eyes open as opposed to this guy [Carolyn Koo, TheStreet.com staff reporter, commenting on a report by analyst Philip Taylor]:

Nokia's Sales Miss Leaves Doubts About
Its Immunity in Mobile-Phone Market

Philip Taylor, senior analyst with Yankee Group, says the news signals "the beginning of the end of Nokia's total domination of the global phone market."

The reasoning behind this is obviously the possibility of losing market share...or based on the above quote, probability:

In the third quarter, Nokia was far and away the market leader, with a 30.6% worldwide share, according to research firm Gartner Dataquest. Well behind were No. 2 Motorola (MOT:NYSE - news), based in Schaumburg, Ill., at 13.3% and Ericsson (ERICY:Nasdaq ADR - news) of Sweden at 9.7%.

But you see, those are old numbers...you know, from the previous quarter. Since this is the beginning of the end, we will surely see some erosion in this particular metric, I'm sure:

The latest numbers from Nokia indicate that it increased its market share to 31.6% for the year.

Oops...maybe he really meant to say that this is the beginning of the beginning of the end.

But Taylor says: "I would expect that Nokia will find it increasingly difficult to maintain its market share going forward. It's not sustainable in the long term."

More competition is the main culprit, with the fight so harsh that some manufacturers are losing money or barely posting profits. Nokia has been the exception to that rule, boasting profit margins in the high teens on a percentage basis while Motorola struggles in the single digits and Ericsson loses money.

So, because I'm a simpleton, I'm having trouble here. Apparently Nokia is a sure thing to lose market share to competitors who are losing money or at best, have margins less than half of Nokia's. Also, these same competitors are either selling off their handset divisions or are dying to. I always thought the guy who had the strong margins in combination with domination in terms of market share was in pretty darn good shape competition wise?

Some competition is coming from the Asian phone makers -- such as Japan's Sony (SNE:NYSE ADR - news) and Matsushita (maker of the Panasonic brand) and Korea's Samsung -- which "have a fairly strong hold on certain markets" in Asia, according to Taylor. Panasonic had a 5.4% worldwide share at the end of the third quarter.

In order to increase profitability, there's talk of different manufacturers merging their handset units, giving them the ability to take advantage of economies of scale. Usually, the talk has revolved around smaller players, but there's been mention of Ericsson, and even Nokia, seeking out an alliance of some sort with a Japanese player.

Okay, I'm missing it again, I guess...jeez, I'm so stupid sometimes. Apparently, the author and Mr. Taylor feel Nokia will be squeezed by the Asian market as certain manufacturers are seeking to form alliances to increase profitability and one would expect, market share. Of course, one of those manufacturers mentioned specifically was Nokia. So, that's it...they're going to lose market share to themselves. Now, I'm getting it.

Meanwhile, Nokia's problems are more a concern for Motorola and Ericsson, Taylor observes. Motorola and Ericsson's woes are both well documented.

Oh, crap...now I'm lost again. I thought this was the beginning of the end for Nokia. I swear this guy said that. But whatever problems Nokia has are bigger for their competitors...yet its the beginning of the end for Nokia. And it is such a serious problem for them that they are gaining market share.

Of course, I'm not quite ready to show you the link where another analyst says that the price of Nokia's phones are actually increasing which in turn would have what kind of effect on their margins? Any takers on this question?

I swear this investment stuff is sneaky, huh?

Regards,

Scott