As the world continues to embrace the smartphone revolution, Nokia (NYSE:NOK) remains grounded with one foot stuck in the feature phone past, and rightfully so. Last quarter, over 50% of Nokia's device revenue came from feature phones, helping it command the No. 2 mobile phone vendor position in the world. During the period, Nokia's feature phone business made up over 82% of the company's device shipments. Although the feature phone business will eventually be overrun by the smartphone business, there's still a long way to go until that happens. Currently, the world has only reached 25% smartphone penetration, which is exactly the reason Nokia continues to release feature phones. Additionally, Nokia's feature phone business earns a higher gross margin than its smartphone business, albeit at a likely lower overall profit per device.
Weighing in at an unsubsidized price of about $20, the Nokia 105 is as basic as a feature phone can get in 2013. Destined for the emerging-market world, the phone features a color screen, a FM radio, flashlight, and a battery that's rated to last up to 35 days on standby. Being the cheapest feature phone Nokia offers, it's intended to connect the next billion mobile phone users.
For those users who are looking for a few more features, the $85 Nokia 301 delivers bang-for-your-buck value. It features a 3.2 megapixel camera, a 2.4 inch screen, a dual-SIM option, 3G speeds (HSPA) for Internet browsing, basic email functionality, and apps for accessing Facebook and Twitter. The 301 will go on sale in over 120 countries during the second quarter.
The right move
Considering Nokia's feature phone position, it's not surprising to find the company investing in a business that has stagnating growth rate compared to smartphones. Last year, the smartphone industry grew by 44.1%, yet the entire mobile phone industry only grew by 1.2%. Excluding smartphones, the remaining mobile phone industry (including feature phones) would have declined by 17%. Last quarter, Nokia's feature phone business experienced a 15% year-over-year decline in volume, which suggests that Nokia is gaining market share within this declining mobile phone segment.
Overall, Nokia continues to blur the line between the smartphones and feature phones by aggressively closing the price gap, which potentially puts Nokia in a unique position for growth over the long term. After all, this is the company that invented an Android killer.