Finnish mobile firm’s fightback will prove futile
ANOTHER day, another blow for Nokia. Richard Green, the firm’s technology supremo, has quit after just one year in the job, and you can hardly blame him. Even chief executive Stephen Elop has described the company as a “burning platform”; Green obviously thought it was a sinking ship.
Much has been made of Nokia’s slaughter at the hands of Apple and other handset manufacturers, such as Blackberry maker RIM. These relatively new insurgents have decimated its market share in high-end smartphones. In 2008, Nokia had 33.4 per cent of the global market for phones worth $300 upwards, but by the end of 2010 its slice was a paltry 11.3 per cent.
Less attention has been paid to Nokia’s vulnerability in the market for cheaper phones. At the end of last year, it still had an 86.8 per cent share of the global market for sub-$200 smartphones and over half (52.5 per cent) of the market for phones worth $200-$300.
In our view, Nokia’s apparent strength in the low-end phone space is unsustainable, because better Asian handsets using Google’s Android are quickly making inroads. Given Nokia’s abject inability to stave off Apple et al, we don’t fancy the Finnish firm’s chances.
It is tempting to see Nokia’s stock as cheap, with an enterprise value of just 0.4 times 2011 sales forecasts thanks to its hefty €6.4bn cash pile. This won’t prove much of a buffer to the €7.7bn of revenues that analysts at Nomura think Nokia will lose by 2013. In that light, Nokia’s plan to reduce operating expenditure by €1bn over the same period seems laughable, and only serves to highlight the futility of any fightback. Investors should follow Green by voting with their feet.