The past week saw quite a few developments in the mobile sector.
Nokia (
NOK
) scored a major coup by signing on China Mobile (
CHL
), the world's largest wireless carrier by subscriber base, to sell
a TD-SCDMA version of the Lumia 920, starting later this month. On
this news and other developments, Apple's (
AAPL
) stock took a big 7% tumble Wednesday - its biggest single-day
loss in four years. Nokia's joint-venture with Siemens, Nokia
Siemens Networks, announced the sale of its optical networking
business unit to Marlin Equity Partners as part of its ongoing
restructuring that will help it cut costs and sustain operations on
a standalone basis. Towards the end of the week, China Mobile said
that an iPhone deal with Apple is contingent on successful
negotiations of a mutual 'benefit sharing' agreement between the
two parties. (see
Apple's China Potential Could Be Limited By A
Subsidy Compromise With China Mobile
)
Nokia's China Mobile deal
Nokia's stock received a major boost Wednesday, rising almost
13% on news that the company has entered into a deal with China
Mobile to sell a version of the Lumia 920. Earlier, there were
rumors in the market about the Lumia 920T for several weeks prior
to the announcement but Nokia finally confirmed that it will indeed
be bringing the TD-SCDMA variant of its flagship Lumia 920
smartphone, the Lumia 920T, to China Mobile before the end of the
year. While Apple's iPhone 5 will be launched on
both China Unicom (
CHU
) and
China T
elecom
(
CHA
) next week, China Mobile's huge subscriber base gives
Nokia almost twice as big an addressable market for its comeback
Windows Phone bid in the world's biggest smartphone market.
This comes on the back of several reports claiming that the
Lumia Windows Phone 8 smartphones are seeing impressive demand
leading to sell-outs in multiple developed markets, including the
U.S., Germany and Australia. A Yahoo China report goes as far as to
claim that Nokia received more than 2.5 million orders for the
Lumia 920 in less than a month since launch. To add perspective,
this is just a tad shy of 2.9 million sales that Nokia recorded for
the entire Lumia portfolio during the previous
quarter. With the world's largest subscriber base of
close to 700 million and 3G penetration of only about 11%, China
Mobile presents a big opportunity for Nokia to make the most
of the rising Lumia popularity. (see Nokia Inches Closer To $4.50
Fair Value With China Mobile Deal)
Apple's big fall
Despite high expectations from the ongoing holiday
season, Apple's (
AAPL
) shares took a big tumble Wednesday, falling almost 7% by the end
of the day and recording its biggest single-day loss in four years.
Such a huge trading loss cannot obviously be accounted for by a
single reason and multiple explanations have since emerged for the
decline. While some have put it down to margin requirements for
Apple positions being increased by clearing firms, others have
attributed the decline to decreasing expectations about the
declaration of a special dividend from Apple this year before the
impending fiscal cliff. These reasons, however, have little to do
with the fundamentals of Apple and don't therefore impact our
long-term view of the company from a valuation perspective.
Apple's big fall on Wednesday however coincided with a few other
important news reports that might impact its
long-term competitive standing. Research firm IDC, for
instance, saw Apple's tablet market share slipping to 53.8
percent in 2012 from 56.3 percent last year in the face of rising
competition from Android tablets such as Google's Nexus 7, Amazon's
Kindle Fire and Samsung's Galaxy Tab. Growing competition in the
smartphone market from a resurgent Nokia, which announced a China
Mobile deal for its flagship Lumia 920T the same day, was another
big reason for the nervousness. Somewhat disconcerting was also
AT&T's announcement that it expects to sell only 26 million
smartphones this year, implying a year-over-year decline in Q4
smartphone sales. Given how important iPhone has historically been
to AT&T's smartphone sales, this was seen as having a direct
implication on the overall iPhone sales.
While all the above listed concerns may
have cumulatively pulled down the company's market
capitalization by $35 billion in a single day, we maintain
our $710 price estimate for Apple's stock as our model takes
into account the impact of the growing competition on Apple's
margins both on the iPhone and the iPad front. As for the impact of
the recent developments on Apple's iDevice sales, we see that our
estimates might actually be a tad conservative. (see Why
Apple's Fall Was Exaggerated; Sticking With $710 Estimate)
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