There's Hope for Nokia – Encouraging N8 Sales Could Signal Optimistic Outlook

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Nokia ( NOK ) traditionally competes with mobile phone players like Apple ( AAPL ) and Research in Motion ( RIMM ). A few weeks back, we examined whether Nokia's stock could benefit from better than expected N8 sales. ( Can Nokia's N8 Smartphone Boost Market Share ) Our analysis was sparked by a Morgan Stanley survey suggesting that Nokia could sell 2.5 million N8 smartphones during Q4 2010, and 9 million in 2011. The survey included 150 handset retailers in 5 countries across Europe.

However, according to more recent research by Finnish research company Inderes, it now appears that Nokia finished Q4 2010 well ahead of the initial estimates for N8 sales - Inderes estimates the company sold between 3.5 million and 4 million of the smartphones. If these estimates are accurate, it could signal added optimism for our $12.46 price estimate for Nokia stock , which is about 18% higher than the current market price. We estimate that Nokia generates nearly half (48%) of its stock value from emerging market mobile phone operations, while another 17% comes from developed markets.

Market Share Declines a Cause for Concern

We estimate that Nokia sold a total of 450 million handsets in 2010. Hence better than expected N8 sales (of nearly 4 million units) is still just a drop in the ocean.

The focus here is on the bigger picture. In the recent past, Nokia has struggled to sustain market share in the face of pressure from competitors like Apple, Research in Motion and Samsung. Nokia's market share of the smartphone OS market declined from around 45% in Q3 2009 to 37% in Q3 2010, while Google's ( GOOG ) Android has rapidly closed the gap.

Market share losses are by no means a recent trend for Nokia. The company's mobile phone market share in developed markets declined from an estimated 29% in 2007 to 24% in 2010, while its share in emerging markets dropped from 45% in 2008 to 33% in 2010.

These are big market share losses for Nokia, and we don't foresee any recovery unless Nokia can institute a dramatic turnaround. Could N8 produce that turnaround? On a standalone basis, N8 is not enough to provide the turnaround that Nokia needs. It does, however, provide a step in the right direction.

Are Recent Software Issues a Thing of the Past?

Has Nokia sorted out its software-related issues? Difficult to say, but at least the recent N8 sales estimates provide some optimism that Nokia has ironed out these concerns. N8 is the first Nokia smartphone based on the Symbian 3 operating system, so the market could be indicating that Symbian 3 is notably superior to its predecessors. Symbian 3 does have a few new features not included within Symbian 2, like the ability to shoot and edit HD videos and the ability to show live Facebook feeds. However, it remains to be seen whether these new features and functionality improvements can sustain interest from consumers over the long term.

Double-Digit Stock Upside if Nokia Can Sustain Market Share

On an optimistic note, if Nokia does indeed manage to improve its mobile phone sales and maintain market share at 2010 levels of 24% in developed markets and 33% in emerging markets throughout the Trefis forecast period, there could be an upside of around 10% to our estimate for Nokia stock. This represents an incremental 10% upside beyond the 18% premium at which we currently estimate Nokia's stock value.

This scenario could have indirect benefits as well if the elevated demand  and corresponding bargaining power allows Nokia more control over product pricing and profit margins in its mobile phone business.

To see the impact of various market share trends on Nokia's stock value, drag the trend lines in the modifiable charts above.

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You can see the complete $12.46 Trefis Price estimate for Nokia 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 , GOOG , NOK , RIMM

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