smartphone demand flagging suddenly?

[quigleydoor]

Re: smartphone demand flagging suddenly?

Not to belabor the Nokia topic too much, but I do find it to be a "special situation" type of investment, so just a short response to c1ue's last post:

I do think Navteq is doing a lot of good things, but the success of this division does not guarantee the success of the overall company [Nokia]. The overall company has to execute on a successful smartphone strategy a la Samsung - and so far the jury is still out.

I agree that the jury is still out, hence the current valuation of the company. I also agree that a successful smartphone strategy is essential, but the definition of "successful" is more nuanced.

Aside from the Lumia line of Windows Phone based smartphones, Nokia is making a line called Asha for lower-income countries. They are not selling Asha in North American or European Union countries. Asha phones are "all but smart" in that they have a lot of apps built in, but they are not built on an open platform where owners can download apps from third party developers. For example, a Facebook app is built in. Nokia and Facebook have made agreements with many cellular data carriers in countries where it sells Asha, so that data consumed by the Asha Facebook app incurs no charges.

Additionally, Nokia has arranged with carriers to compress internet data so that Asha owners' data charges are reduced, and the internet features perform well even on spotty 2G networks.

Nokia expects these features to make the Asha phones more appealing than Android based phones in the same price range. Samsung has a responded to Asha by developing a platform called Rex (not Android based), but it is too soon to tell if Asha or Rex or cheap Chinese Android handsets are really going to win in the marketplace. (Asha sales were disappointing in Q1; I haven't seen any forecasts for Q2.)

So Nokia's future is not tied to Windows Phone exclusively. If Asha succeeds in many countries with large, youthful populations, but Lumia fails in rich, older countries, then Nokia profits with a "blue sea" strategy instead of a "red sea" strategy of competing directly with Apple and Google/Samsung.

Furthermore, Nokia also owns half of Nokia Siemens Networks, a manufacturer of cellular infrastructure. This is currently the most profitable division of Nokia, after a major restructuring was completed last year. NSN has a reputation as a quality choice (vs. Huawei, et al.), and is working with carriers all over the globe.

It's for these reasons that I believe Nokia is deeply undervalued. It is currently priced as if bankruptcy and liquidation are a likely future.

[FrankL]

Re: smartphone demand flagging suddenly?

Not to belabor the Nokia topic too much, but ...

It is currently priced as if bankruptcy and liquidation are a likely future.

maybe because their likely future IS bankruptcy and liquidation. Do you realise how many of Nokia's assets have been sold off already in order just to survive to today?

Unless you think that Microsoft's Windows Phone OS suddenly is going to take off. Microsoft has tried to make their platform appeal to developers by their multi-platform approach; this meant forcing their 'metro' interface onto Windows 8 users... which has not really gone down well with customers so far to say the least!

As far as 'Asha', it's their feature-phone OS; not likely to regain any marketshare in the smartphone segment due to the accompanying feature-set and lack of apps.

This week rumours have surfaced that Microsoft was in talks with Nokia regarding an acquisition, but that they thought Nokia was overvalued considering the tiny marketshare they retain at this point. Maybe they should have instructed Mr. Elop to be even more aggressive in driving Nokia into the ground in order to drive the price down. He's done a terrific job so far!
(although I'm not saying everything was well before he was appointed CEO).

ok, coming back to the assessment on Nokia.. maybe bankruptcy and liquidation are slightly pessimistic, but they definitely don't appear to have much chance of making a come-back after shedding so much of their R&D and betting the future on an OS that is not catching on that much.

[c1ue]

Re: smartphone demand flagging suddenly?

So Nokia's future is not tied to Windows Phone exclusively. If Asha succeeds in many countries with large, youthful populations, but Lumia fails in rich, older countries, then Nokia profits with a "blue sea" strategy instead of a "red sea" strategy of competing directly with Apple and Google/Samsung.

I personally think that 'winning' on the low end of the world marketplace is a losing strategy.

As exhibit A: I present Research In Motion. While cops in India use Blackberries to issue parking tickets, the reality is that RIM is going nowhere, fast.

And I must point out that the RIM devices are fantastic: reliable, great battery life, GPS systems are the best among smartphones, email is bulletproof, etc etc.

But ultimately the profits required by any global company require a global (high) class product; Nokia so far just hasn't been able to make it happen.

I'd also note that even among Android - Samsung is making something like 95% of all the profit in the entire sector. To me, this means scale is of utmost importance. Selling low end products - it is really hard to both maintain margin and achieve scale.

[flintlock]

Re: smartphone demand flagging suddenly?

I personally think that 'winning' on the low end of the world marketplace is a losing strategy.

I'm no expert on the cellular phone business, but the mentality that market share trumps all is an all too prevalent idea in business today. Glad someone here "gets it" that if you have losing margins you can't always "make it up with volume!"

[flintlock]

Re: smartphone demand flagging suddenly?

My quick summary of cell phone business in US for those who hate wading through all the Android vs Iphone and big vs small carrier arguments.

1) Android vs Iphone. Both are amazing technology that will do pretty much whatever you ask of them most of the time. Not enough difference to spit at for 90% of folks. Android appeals more to those who like to tweak/customize more and Iphone more to those who just want the thing to work with little thought involved. I simply stick with IOS because that's what I started out with, and it works. If I had a good reason to switch I would but there is not enough of an incentive right now. I do however admire Apple for the good service AFTER the sale we have personally received and their approach to treating the customer. But I'm under no illusion they are saints. Consistency has value.


2) As someone who makes a living with his phone vs just personal use, there are big differences in coverage and quality of service, at least in my area. So that $10 month savings or whatever is simply not worth pissing off clients with dropped calls and missed voice mails. So first issue most should ask is "What do I use this phone for?" If its business skip straight to a major network and skip the marginal ones.

3) That said, some of the pre-paid stuff uses the Verizon network or other major networks. So it could pay to use them without a penalty in service.

4) I think most looking to save money would be better served adding insulation or caulking than obsessing over a few dollars on their cell phone bills. The nature of markets is that when you compare Apples to Apples( no pun intended), there simply won't be many super bargains out there for very long. You usually end up paying one way or another, either for a better phone or better service, etc. TANSTAAFL still applies.

[NCR85]

Re: smartphone demand flagging suddenly?

1) Android vs Iphone. Both are amazing technology that will do pretty much whatever you ask of them most of the time. Not enough difference to spit at for 90% of folks.

I think you're entirely right, which is why they should be priced about the same for devices with equivalent processors and screen size/resolution. but they aren't.

[quigleydoor]

Re: smartphone demand flagging suddenly?

I personally think that 'winning' on the low end of the world marketplace is a losing strategy. . . . Ultimately the profits required by any global company require a global (high) class product; Nokia so far just hasn't been able to make it happen.

The story below is about the lowest priced phones that Nokia makes today, the entry level cell phone, the Nokia 105. Nokia can make a good profit in this market. This indicates that margins on the Asha line will probably be good, too.

Local exec: our profit margin on 15 Euro Nokia 105 are similar to those we get on our smartphones
By Staska on 25 Apr 13

Nokia has started selling its new ultra-cheap $20 model 105 in China yesterday. The phone is actually a bit more expensive there, retailing at 162 yuan ($26), but that does include local taxes. The new handset goes under the name Nokia 1050 there.

During the launch, local Nokia execs gave a few interviews about the new phone, and had some interesting things to say.

According to Nokia China Platform and Technology R&D director Jun Wang, the ultra cheap price of 1050 handset is not a problem for Nokia. Despite the low price, the profit margins generated by the sale of each device are comparable to those Nokia gets from its smartphones. And while profits per device in absolute numbers are pretty low, Nokia will make it up in volume. Because of the extremely low price they expect to move huge quantities of Nokia 105 phones around the world.

Furthermore, the shift of many of Shenzen cheap phone makers to Android smartphones actually helps Nokia with their own low cost phones. Since nobody yet can profitably make Android smartphone below $50, competition in ultra cheap market tier has actually decreased. And, according to Nokia exec, there still are 2.7 billion people in the world who do not have a mobile phone, for many whom Nokia 1050 would be a perfect entry device.

Well, we’ll have to wait and see what the actual sales of Nokia 105 will show in a quarter or two. But it seems that those terrible Q1 numbers from Nokia’s mobile phone division may not be as bad as they look at first glance.

[FrankL]

Re: smartphone demand flagging suddenly?

The story below is about the lowest priced phones that Nokia makes today, the entry level cell phone, the Nokia 105. Nokia can make a good profit in this market. This indicates that margins on the Asha line will probably be good, too.

Local exec: our profit margin on 15 Euro Nokia 105 are similar to those we get on our smartphones
By Staska on 25 Apr 13

The margin might be similar, but the size of the feature phone market compared to the smartphone market does not make up for the difference in absolute profit per phone sold.

They will need to sell 20 Nokia 105s for every single smarphone sold with 300 euro pricetag to end up with the same profit.

[quigleydoor]

Re: smartphone demand flagging suddenly?

The margin might be similar, but the size of the feature phone market compared to the smartphone market does not make up for the difference in absolute profit per phone sold.

They will need to sell 20 Nokia 105s for every single smarphone sold with 300 euro pricetag to end up with the same profit.

That's essentially what they are going to do. The world is a very big place; there are many people with very little money. Nokia has the capability to deliver inexpensive, high quality cell phones. They do this better than any other company. As the article stated, Nokia can build inexpensive handsets with good margins, because of the company's legacy. Nokia's devices are first and foremost two-way digital radios. The components that Apple and Google/Samsung depend on, the resource-intensive CPU, memory, and OS, are not required by Nokia. Until the competition learns that a phone is not necessarily a computer, this is Nokia's market to win.

A pillar of Nokia's corporate vision is to bring the next billion people online in developing growth markets.

In feature phones, Nokia’s strategy is to leverage its innovation and strength in growth markets to connect even more people to their first internet and application experience. By providing compelling, affordable and localised mobile experiences, particularly to emerging markets, our ambition is to bring the next billion online.

We will continue the renewal of our Series 40 platform in QWERTY, touch & type, dual SIM, Nokia services, including Maps, Browser, Life Tools, Web apps and Money. We are also investing in the future; developing assets (platform, software, apps), which will bring a modern mobile experience to consumers and enable business opportunities for developers.

Like I said earlier, Nokia is both a management turnaround story and an emerging markets story. As a Nokia investor, at today's stock price, I honestly don't care if Windows Phone succeeds or fails. I hold the stock because of the potential growth in the other lines of business. Take a look at the Life service. This is an information service delivered over SMS to customers in remote villages and farms. Nokia provides these customers with information to help them grow crops, raise families, and learn English. Life itself is profitable, and it does not exist in a vacuum. When customers succeed with Nokia Life, they trust the brand when upgrading their cell phones. The 105 and Asha share the same relationship, the aspirational upsell. In cities, Asha and Lumia do, too.

In the joint venture with Siemens, they build cellular network infrastructure. Obviously as new cell phone users come online, the demand in this market will increase.

Also like I said earlier, I believe that Nokia's near failure thus far to compete in the smartphone market serves to distract most investors. Smartphones are a great, high-margin business, but just one of several things Nokia is doing. Nokia is a like a big car company, say General Motors, selling Cadillac and Geo to different customers.

Now I'd just like to speculate on social behavior of investors for a minute. People are biased by the information tools they use. For a tangential example, Gillian Tett recently wrote about an exchange she had with a banker in 2007:

Back in early 2007, during the height of the credit bubble, one of Wall Street’s most senior bankers criticised me over some of my articles about the complex credit world. “Why do you keep writing that structured finance is murky and opaque?” he railed. “It’s not opaque – anyone can get anything they want off a Bloomberg machine!”

“But what about that 99 per cent of the population that is not on Bloomberg?” I asked, pointing out that most politicians and journalists – let alone ordinary voters – did not have access to those hallowed Bloomberg terminals, which allow financiers to access data and place trades, as well as providing news coverage. How could they get information? That question elicited a long, pregnant pause. This particular banker clearly assumed that everyone who mattered had a Bloomberg terminal. He did not know how to reply.

I think a similar phenomenon infects investors' thinking about Nokia. The emerging market growth prospects seem to be invisible to a lot of people. So much hating of Microsoft to do! People seem incredulous that more than one thing might be going on in this company. They won't put down their iPhones and Droids long enough to look at the whole business of Nokia.

Look, it's just an undervalued stock. I'm only still participating on this thread because I'm still looking for an argument that will convince me otherwise.

[thriftyandboringinohio]

Re: smartphone demand flagging suddenly?

The margin might be similar, but the size of the feature phone market compared to the smartphone market does not make up for the difference in absolute profit per phone sold.

They will need to sell 20 Nokia 105s for every single smarphone sold with 300 euro pricetag to end up with the same profit.

I think of "profit" as a percentage, not as an amount.

Although Nokia may become a smaller company for a while, it looks to be a profitable one.
It's better than bleeding out all reserves attempting to compete with Apple and Samsung in high end smartphones and just closing the doors.

One could consider Apple a failed maker of desktop computers who lost that market to Microsoft, Dell, Compaq and HP.
They stayed alive as a smaller company and came up with iPods, then iTunes, then iPhone.

Nokia may end up doing well in another niche in the future, their products were always excellent, a good outcome for Nokia would not surprise me.

[c1ue]

Re: smartphone demand flagging suddenly?

The story below is about the lowest priced phones that Nokia makes today, the entry level cell phone, the Nokia 105. Nokia can make a good profit in this market. This indicates that margins on the Asha line will probably be good, too.

The problem is, is that Nokia isn't focusing on making Nokia 105s or services or whatever other small, specific areas that do generate profit for Nokia.

How much has Nokia spent to push its Windows phone ventures? Development, marketing, channel-greasing, etc etc?

I completely agree that Nokia makes good products outside of the smartphone market, and equally I've agreed that there are lots of bits in Nokia that are valuable like Nokia's maps group.

Unfortunately, the sum of parts is not positive, and I haven't seen any indications whatsoever that the trend is significantly improving.

That's essentially what they are going to do. The world is a very big place; there are many people with very little money. Nokia has the capability to deliver inexpensive, high quality cell phones. They do this better than any other company. As the article stated, Nokia can build inexpensive handsets with good margins, because of the company's legacy. Nokia's devices are first and foremost two-way digital radios. The components that Apple and Google/Samsung depend on, the resource-intensive CPU, memory, and OS, are not required by Nokia. Until the competition learns that a phone is not necessarily a computer, this is Nokia's market to win

It is true that a lot of people don't have cell phones, but it is untrue that there is a gigantic latent market that is untapped. Nokia isn't the only company making low cost cell phones - there are hundreds of small companies in China, India, and other nations that do so. Equally the big companies like Samsung also market their products in these smaller nations.

Then you see things like this:

http://newsfeed.time.com/2013/03/25/...n-study-shows/

Out of the world’s estimated 7 billion people, 6 billion have access to mobile phones. Only 4.5 billion have access to working toilets

Well, if 85.7% of the entire world already has access to cell phones, it isn't clear to me that focusing on the last 14.3% is going to be notably successful.

One could consider Apple a failed maker of desktop computers who lost that market to Microsoft, Dell, Compaq and HP.
They stayed alive as a smaller company and came up with iPods, then iTunes, then iPhone.

I think that hoping Nokia is able to pull a Jobsian product invention is not a particularly realistic investment strategy.

I do wish Nokia well, but equally I have yet to see much in the way of a convincing argument that Nokia is a sleeping giant as opposed to a company which has missed a major turn in its primary market and is struggling to catch up.

Thus while I still have (and even occasionally use) a Nokia which is notable for my having dropped it, watched it fly apart into 5 pieces, reassemble it, and make a call - all in front of an astonished customer audience - unfortunately this phone is one which I use only when I'm traveling and can't use any of several other devices.

[flintlock]

Re: smartphone demand flagging suddenly?

I think you're entirely right, which is why they should be priced about the same for devices with equivalent processors and screen size/resolution. but they aren't. [/COLOR]

Is there really that big of a price difference? I don't know, I've never shopped them based on full retail price. I assume most people still buy phones from the major carriers at prices subsidized by being tacked onto the monthly plan price? I recently saw Best Buy was selling the Iphone5 for basically free with Iphone trade in. Of course tack on another 2 years to the contract. My Iphone 4 is only worth about $150 tops so that's not a bad deal for a 5. I use Verizon and can't see why I should settle for a cheaper phone when I'm paying the same monthly fee for service. I use my phone a lot for business and $100 difference here or there is nothing in the big picture vs having the thing do what I need it to do, and without a lot of hassle. The whole system is goofy but that seems to be the way it works here. If I had started with Android I'd probably be using that. I'm just familiar with Apple now.

One thing I will say about Apple products is that they resale very well. I just sold a 1.5 year old refurbished Ipad2 for $6 MORE than I paid for it. Don't know if Android based stuff is the same or not. But I always like to look at both ends of a deal when buying stuff, and that is one factor I took into consideration.

[flintlock]

Re: smartphone demand flagging suddenly?

That's essentially what they are going to do. The world is a very big place; there are many people with very little money. Nokia has the capability to deliver inexpensive, high quality cell phones. They do this better than any other company. As the article stated, Nokia can build inexpensive handsets with good margins, because of the company's legacy. Nokia's devices are first and foremost two-way digital radios. The components that Apple and Google/Samsung depend on, the resource-intensive CPU, memory, and OS, are not required by Nokia. Until the competition learns that a phone is not necessarily a computer, this is Nokia's market to win.

A pillar of Nokia's corporate vision is to bring the next billion people online in developing growth markets.



Like I said earlier, Nokia is both a management turnaround story and an emerging markets story. As a Nokia investor, at today's stock price, I honestly don't care if Windows Phone succeeds or fails. I hold the stock because of the potential growth in the other lines of business. Take a look at the Life service. This is an information service delivered over SMS to customers in remote villages and farms. Nokia provides these customers with information to help them grow crops, raise families, and learn English. Life itself is profitable, and it does not exist in a vacuum. When customers succeed with Nokia Life, they trust the brand when upgrading their cell phones. The 105 and Asha share the same relationship, the aspirational upsell. In cities, Asha and Lumia do, too.

In the joint venture with Siemens, they build cellular network infrastructure. Obviously as new cell phone users come online, the demand in this market will increase.

Also like I said earlier, I believe that Nokia's near failure thus far to compete in the smartphone market serves to distract most investors. Smartphones are a great, high-margin business, but just one of several things Nokia is doing. Nokia is a like a big car company, say General Motors, selling Cadillac and Geo to different customers.

Now I'd just like to speculate on social behavior of investors for a minute. People are biased by the information tools they use. For a tangential example, Gillian Tett recently wrote about an exchange she had with a banker in 2007:



I think a similar phenomenon infects investors' thinking about Nokia. The emerging market growth prospects seem to be invisible to a lot of people. So much hating of Microsoft to do! People seem incredulous that more than one thing might be going on in this company. They won't put down their iPhones and Droids long enough to look at the whole business of Nokia.

Look, it's just an undervalued stock. I'm only still participating on this thread because I'm still looking for an argument that will convince me otherwise.

I think a lot of investors don't understand international markets and perhaps that is why they stay away. There may be some wisdom to that, staying away from things you don't understand.