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Nokia the worlds biggest manufacturer of mobile devices , still enjoys a 40% global market share, dwarfing itâ??s nearest competition; Motorola , Sony-Ericsson, Samsung, & LG. The company is particularly strong on an international basis, with top market share in practilally all markets served. More importantly, from a MyStockVoice perspective, 80% of sales come from outside the US. With recent advances in 3G licensing in Asia, notably Vietnam, India & China, Nokia  looks well set to come out as the real winner from the mobile broadband explosion.

The companyâ??s scale allows it to produce what is now regarded as a commodity product (low-end cell phones) at a much cheaper prices than itâ??s competitors. Nokiaâ??s dominace in the mobile handset market sees it  earning roughly 15% profit even on entry-level units, while itâ??s most profitable competitor, Samsung, reputedly earns slightly above 13%.

Nokia is also working on growing itâ??s service offerings, expanding into music & games, whilst adding compatible location based services (LBS)with the recent acquisition of NAVTEQ. The strategy being that Nokia can earn incremental revenue from these services whilst building brand loyalty/customer lock-in, as users become accustomed to Nokiaâ??s services & will opt to replace their existing handset & existing services with another Nokia model instead of migrating to a competitor.

From a financial point of view, Nokia holds an enviable position. The current balance sheet shows �5.5 billion against about �4.4 billion in debt, 70% of which is in short term notes.  Return on capital is pretty impressive to date, since 2004, ROIC is over 160%, & standard return on capital is equally impressive at 75%. Operating margins run at circa 13%, with free cash flow at 9%. For the long term investor, Nokia also has a track record of delivering a dividend yield of close to 4%. That said, the dividend rate was cut by 20% in January to reflect the impact of the gloabl downturn.

Nokia is clearly facing some major competition in the high end â??smartphoneâ? category, which is judged to be the fastest growing sub-sector of the market. While Nokia is still the worldâ??s biggest smartphone maker, competitors Apple  with the iPhone & Research in Motion  with its Blackberry range have both  quickly gained market share , whilst Asian manufacturers such as HTC are also proving to be a thorn in the flesh.

My take is that if Nokia can crack some key markets in SE Asia, India & China, they will be able to surpass their upstart rivals, although in China, native handset makers will obviously have a first pass; e.g. TD-SCDMA with China Mobile . Nokia has a long track record with Vodafone, Orange & Telefonica, all of whom are increasingly active in Emerging Markets. With a retrospective look at the last quarters results & with the current overly sold price, I am looking at Nokia as a winner, 6 moth personal target price of $18.50 on the ADR

This entry was posted on Sunday, November 22nd, 2009 at 2:57 am and is filed under Cellphone. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.