Never underestimate the power of a strong global brand. A worldwide presence has served Coca-Cola (NYSE:KO) and Microsoft (NASDAQ:MSFT) shareholders well through the years, but the fun isn't reserved for American companies alone.
Finnish cell phone and mobile infrastructure expert Nokia (NYSE:NOK) is doing the same thing, spreading its market power across the world. Europe has always been its strongest sales area, with the U.S. following in short order, and this is still true. But those two flagship demographics are declining in importance to the company's revenues, and some surprising countries are making their way up that list.
According to Nokia's just-released full-year 2006 report, China has been the largest single-nation market for two years, accounting for 13% of 2006 sales. The United States is holding its own in second place, but India just leapfrogged Great Britain for the third position. Russia is in the top 10 again, and Indonesia and Brazil just pushed France and Saudia Arabia out of it.
At this rate, the European countries might soon disappear from the top-sales list altogether, and India will pass the Yankees. Now, that changing sales mix isn't entirely good news. Emerging markets tend to buy fewer high-end handsets and more of the no-frills phones with lower sales margins. Nokia isn't chasing these markets as aggressively as Motorola (NYSE:MOT) or Sony Ericsson, both of which are boasting growing market shares in developing nations but also significantly lower margins. The Finns are approaching the new opportunities more cautiously, balancing top-line growth with operating efficiency.
The company can afford to take it slow, being the far-and-away worldwide cell phone sales leader. A strong brand is important, and you can build that through some aggressive selling tactics in a fresh market's formative years. That's what the competition is trying to do right now, but there's a danger of making customers think "cheap" and "simple" when looking at those products. It looks like Nokia is going the other route, which is to establish a somewhat higher-end presence, building an upscale brand that can present higher margins later on. Did you know that Nokia sells more electronic music players than Apple (NASDAQ:AAPL), and more cameras than Canon (NYSE:CAJ)? That's what a lineup of feature-packed cell phones can do for the market leader -- establish leadership in some unexpected areas.
The market will eventually show us whether the high road, or the low, ends up more profitable. In the meantime, the market as a whole is growing, and Nokia is generating some impressive numbers even while gross margins are going down.
For further Foolishness:
- Ericsson Gets Set to Rule the Zoo
- The Olympics and Investing: Finland
- The Olympics and Investing: Sweden
- Motorola's Expensive Sales: Fool by Numbers
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Coca-Cola and Microsoft are Motley Fool Inside Value recommendations.
Fool contributor Anders Bylund is a Coke shareholder but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure never gives you a busy signal.
