High-end smartphone market – dominated by Apple/Samsung, Nokia losses out

Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)  had a whopping 41% share of the smartphone industry in 2009. By 2012, that number was down to 5%, and analysts at Credit Suisse expect the number to decline to a meagre 2% by 2012. No wonder Tiger Cubs love shorting shares of Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) (see all European short positions). On the other hand, Nokia credit is currently a hot commodity. Research in Motion Ltd (NASDAQ:BBRY) (TSE:BB) captured 20% of the smartphone market in 2009, by 2012 the percentage was four. Meanwhile Samsung should grow from 3% of market share in 2009 t0 34% (Credit Suisse estimate) by 2013. Apple Inc. (NASDAQ:AAPL) has increased its share from 15% in 2009 to 19% in 2012. These drastic changes in market share will impact the future of the industry, according to a new report from Credit Suisse.

Nokia market share of smartphones decline from 2009 to 2013

While Apple Inc. (NASDAQ:AAPL) and Samsung may have the effect of driving the $400 or above smartphone market, many of the remaining vendors have limited exposure. With less differentiated high-end portfolios, many of the remaining smartphone vendors are pressured. This may continue to force pressures on Nokia and Research in Motion Ltd (NASDAQ:BBRY) (TSE:BB) as they have high expose in the feature phone and mid-end smartphone business, which is being cannibalized by the barbell trend of smartphone industry.

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s Windows turnaround and feature phone business is vulnerable. A more aggressive share strategy form Samsung has two major implications for Nokia Windows turnaround challenged. As shown below, around 80% of Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)
smartphone shipment is in the mid or low-end. A more aggressive strategy from Samsung armed with a superior Android ecosystem would present risk to the windows platform from gaining traction.

Nokia RIMM smartphone prices

Feature phones an accelerated decline. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s feature phone business, the segment that is making profits within the whole Devices & Services business, will face the risk of cannibalization from Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930)’s high volume growth in the low-end smartphone market.

Nokia faces pressure in its mobile phone business

Within Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s feature phone portfolio, the mid-end products, represented by Asha phones, account for about 25% of total feature phone volume and is most vulnerable as its price points are very close to low-end smartphones. The increasingly competitive pressure from the low-end smartphone growth should ultimately push down Nokia’s feature phone business operating margin to 2.7% in 2014 compared to 5.6% in 2012.

Analysts at Credit Suisse expect Apple and Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) to dominate the high end with a combined share of ~85%, which prevents significant sustainable traction for RIM given superiors compute offerings and ecosystems. For Nokia, additionally a more aggressive mid-end push not only impacts the Windows Phone efforts, but also could accelerate the decline of its mobile phone business.