Nokia Corporation (ADR) (NOK) Asha Phones vs. Samsung’s Rex Line

Nokia 8
Hermann / Pixabay

Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has been in the news this week with the possible leak of its new tablet but on Thursday, Bank of America Merrill Lynch analysts wrote a new research report looking at its Asha phones. This comes on the heels of Samsung’s new “Rex” product line.

Nokia Corporation (ADR) (NOK) Asha Phones vs. Samsung's Rex Line

Analysts reiterated its “Underperform” rating on Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s stock. Year-to-date, it is up 0.53%.

From the report, “Competitive pressures increasing in low-end,” here’s some highlights.

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Samsung launches Asha competitor; Re-iterate U/P on Nokia: On Thursday morning, Samsung announced its new product line called “Rex.” This range of full touch, feature phones is specifically targeting India. Analysts viewed this announcement as incrementally negative for Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) given the recent success of its Asha product line in this market. They re-iterated their “Underperform” rating and gave it a EUR1.90 ($2.54 USD) price objective.

Samsung “Rex” specs broadly on par with Nokia “Asha”: Samsung’s “Rex” product range is made of four, 2G, full touch feature phone devices. The models will sell for $79 to $120, which is broadly on par with Nokia’s Asha product line that sells for $84 to $114.

For specifications, the Rex line is broadly on par with the Nokia Ashas, using resistive touchscreens at the low end and capacitive touchscreens at the higher-end of the range. They come in 2.8’’, 3’’ and 3.5’’ screen sizes vs Nokia Asha full touch models using only 3’’ screens.

The Rex phones support 9 to 13 regional Indian languages, Facebook Inc (NASDAQ:FB), Twitter, Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) ChatON, Yahoo! Inc. (NASDAQ:YHOO), GTalk and Facebook instant messenger clients.

Nokia Asha range potentially threatened by Samsung Rex: Analysts believe that the Nokia Asha product line seems to be losing momentum in key emerging market geographies while India has remained a bright spot. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) sold 9.7 million full touch Asha models in 4Q12, one of the bright spot in the D&S division.

Overall Device & Services operating margins for the feature phone division (which includes Ashas) came in at 8% in 4Q12 thanks to strong volume growth and opex cuts vs -21% margins for smartphones. Analysts are increasingly concerned about Nokia’s D&S margins for five reasons:

– Increasing competitive pressures from low-end Android models from China OEMs (offering dual core, 4’’ devices for as low as $130)

– Limited scalability of the Asha product line in terms of support for 3G and dual core processors

– Samsung’s increasing focus on full-touch feature phones, potentially forcing Nokia to reduce ASPs on the Asha range

– The risk that Apple launches a lower cost iPhone at $250-$300, limiting demand for Nokia’s recently launched Lumia 620 WP device ($250 ASP)

– High-end product launches by Samsung, HTC Corp (TPE:2498),  Sony Corporation (NYSE:SNE), Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB), Huawei Technology Co Ltd (SHE:002502) and LG Electronics Inc. (KRX:066570).

Analysts remain well below consensus for FY13e D&S EBIT: Given all the above, analysts remain well below Street consensus for Nokia’s D&S division, modelling an operating loss of €368m (-2.9% EBIT margin) this year vs pre-result consensus expecting an operating profit of €231m (+1.5% EBIT margin).

No consensus is available yet post Q4 results.

The next catalyst will be MWC from Feb 24 to Feb 28 where analysts expect new WP/Asha models as well as a potential tablet. Analysts reiterate their “Underperform rating” and  EUR 1.90 ($2.54 USD), SOTP-based price objective on Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V).