Nokia Aims for Higher Profitability

In Nokia's ( NOK ) recent earnings call, newly appointed Nokia CEO Stephen Elop announced measures to increase the efficiency of new product launches and improve profitability in order to stave off further market share losses. Nokia has suffered from intense competition in the smartphone market from players like Apple ( AAPL ), RIM ( RIMM ) and Motorola ( MOT ). Specifically, CEO Elop highlighted a 3% reduction in the Nokia work force and emphasized his high expectations for the company's pending new smartphone OS launch.

We believe that these efforts, if successful, could increase the value of Nokia's share price by nearly 20%, implying a new price of $14.60 based on Trefis estimates. We currently have a Trefis price estimate of $12.44, which is approximately 17% above of the current market price of $10.60.

New CEO Charged with Reversing Market Share Losses

Mr. Elop was recently appointed as CEO on September 21, and charged with the task of turning around Nokia's sliding market share, especially in mobile phones. After years of being viewed as an innovation leader, investors now largely characterize Nokia as lagging in innovation, particularly in smartphones and in developing its own OS.

In recent years, due to the success of competing smartphones, Nokia was forced to compete on price and rely more heavily on lower margin basic handsets in emerging markets. We estimate that emerging market phones currently account for over 50% of Nokia's value.

Better Profitability in Mobile Phones the Key

We estimate that EBIT margins (a measure of profitability) in Nokia's mobile phone business within emerging markets will steadily decline to around 8% by 2016 from 10% currently. However, given Elop's aggressive cost cutting measures and the launch of an OS co-developed with Intel (NASDAQ:INTL) called MeeGo, Nokia could gain significantly if it improves its profitability.

If Nokia's profit margins for mobile phones were to remain around its current 10% rather than decline further, this adds an additional $8.3 billion in market value to the current Trefis estimate and translates to a new Trefis price of $14.60, approximately 38% ahead of its current stock price.

You can see the complete Trefis price estimate for Nokia here .

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

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

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