Smartphones Could Boost Nokia's Short-Term Price Structure

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Nokia ( NOK ) has suffered dramatic mobile phone pricing declines over the last few years, especially in emerging markets. Nokia competes mainly with Apple ( AAPL ), Motorola ( MOT ) and  Research in Motion ( RIMM ) in the mobile phone market.

One positive sign for Nokia is the growing proportion of higher-priced smartphones in its product mix. Over the next two years we expect smartphone sales to provide temporary support to Nokia's price structure. However, we expect the company's average phone price to decline after 2012 as smartphone prices drop. Our analysis follows below.

Potential downside to Nokia's stock

We estimate that emerging markets constitute around 53% of the $12.33 Trefis price estimate for Nokia's stock . Nokia faces increasing competition from Apple and RIM in the high-end market, and Samsung and LG in the low-end market. In response to this pressure, Nokia has dropped its emerging-market phone prices drastically in recent years, from an average 94 euros in 2005 to 54 euros in 2009.

We expect Nokia's average phone price to stabilize at around 51.4 euros by the end of Trefis forecast period. However, there could be a downside of 20% to the $12.33 Trefis price estimate for Nokia's stock if the average price slides to 30 euros by 2016, instead of the 51.4 euros that we currently forecast.  You can drag the trend-line in the chart above to create your own emerging market price forecast for Nokia and see how it impacts the company's stock price.

Higher smartphone mix could support short-term pricing

In 2009, Nokia's average smartphone price was around 188 euros. We estimate the average price of the company's lower-end phones at around 41 euros.  We expect the proportion of smartphone sales in Nokia's overall sales mix to increase from 16% in 2009 to 43% by the end of the Trefis forecast period.

We expect average phone pricing to increase slightly from 2010 to 2012, driven by increasing smartphone adoption. However, Nokia has been dropping its smartphone prices at rapid rates in recent quarters. The average Nokia smartphone price declined from 188 euros in 2009 to 143 euros in the second quarter of 2010. We expect Nokia's overall price structure to decline steadily after 2012, albeit at a slower rate.

You can see  the complete $12.33 Trefis Price estimate for Nokia's stock here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: AAPL , MOT , NOK , RIMM

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