Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is unlikely to capture smartphone growth. Analysts at Nomura Equity Research believe that the Finnish smartphone manufacturer is poorly positioned in the industry.
Nomura Equity Research analysts, Stuart Jeffrey and Wu Jin Hoo said that their smartphone estimates were driven higher by APAC (70-79 percent of future growth) where Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) only account for a 1.7 percent share. They also believe that Android smartphones will outperform Nokia’s Asha Touch range in the sub -$100 smartphone market, and in the 5-inch screen sizes where the company is yet to launch its product.
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Jeffrey and Hoo estimated that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will gain from 2.8 percent by the end of first quarter of 2013 to 4.3 percent by the end of 2014. However, they emphasized that the gain is not enough to expand its operating margins higher than the low-single-digit level.
The analysts reduced their global feature phone market unit estimates by 16 to 42 percent. According to them, the cut was triggered by their perception that smartphone cannibalization is happening prior to expectation due to the emergence of “good enough” sub -$100 Android phones. They observed that the sub -$100 Android phones are becoming widely available in markets outside China.
Jeffrey and Hoo noted the prices of good enough Android 3G phones with dual core processors and 1G of DRAM fell from $140-$160 in 2012 to $100 in 2013. They believe that the prices for will continue to decline to as low as $60 to $70 next year.
According to them, “These price declines will cause these good enough Android phones to overlap with Nokia’s Asha Touch portfolio. We expect these Android phones to take Asha Touch’s expense, given their better feature sets and application availability.”
Nokia is highly affected by the changing trend:
As a result, Jeffrey and Hoo lowered their EPS estimates for Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) for fiscal 2013 by 12 percent and 28 percent by 2015.
Jeffrey and Hoo noted that Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is highly affected by the changing trend of the smartphone market. They said that the Finnish smartphone manufacturer remains overexposed to feature phones with 23 percent market share while its smartphone market share is only 2.8 percent. The analysts lowered their revenue estimates for the company’s feature phones by 5 percent for 2013 and 30 percent in 2015.
The analysts maintained their neutral rating despite recommending a price target of €2.50 ($3.23) price target for the shares of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) and negative long-term thesis because the company is expanding its geographic presence and portfolio over the next several quarters.
According to the analysts, “As long as traction remains positive, we expect the stock to retain support, given the potential for upside should Nokia surprise. If /when sequential trends ease (possibly late 2013), however, we would expect the stock to come under renewed pressure.”