Indian Market Losses Could Hurt Nokia

Nokia(NOK) is facing stiff competition from local players in the Indian mobile phone market. India is the second-largest mobile phone market after China, and accounts for around 20% of mobile phones sold in emerging markets.

Nokia competes with Apple (AAPL) and Research in Motion(RIMM) in the high-end mobile phone market, and with LG, Samsung and Sony in the value market. Nokia has historically been the dominant player in India, with strong brand appeal and a far-flung distribution network. But its Indian market share declined from 62% in 2009 to 52% today.

Nokia has lost share to international rivals like Samsung, along with new Indian companies like Micromax, Spice Mobile and Karbonn Mobiles because it neglected emerging trends in the Indian mobile phone market. Nokia has been slow to bring out popular features like dual SIM cards and social networking apps. At the same time, its competitors have invested heavily in advertising campaigns that have helped them grow rapidly.

There could be a 5% downside to the $12.33 Trefis price estimate for Nokia's stock if the company's market share losses in India exceed our expectations going forward. Our analysis follows below.

Nokia struggles in emerging markets

We expect Nokia's global emerging market share to decline from around 40% in 2009 to 34% by the end of the Trefis forecast period.

Around 20% of Nokia's emerging market sales come from India. Nokia sold around 60 million mobile phones in India in 2009, out of a total of 311 million mobile phones sold in emerging markets as a whole. In order to justify its stock price, Nokia needs to sell 440 million mobile phones in emerging markets by the end of the Trefis forecast period. This implies that Nokia must sell at least 88 million mobile phones in India by 2016.

This may be difficult to achieve, given that we expect Nokia's Indian market share to decline rapidly going forward. There could be a downside of 5% to our price estimate for Nokia's stock if its Indian share losses accelerate beyond our expectations, pushing Nokia's total emerging market share down to 30% by the end of our forecast period.

You can drag the trendline in the interactive chart below to create your own emerging market share estimate for Nokia and see how it impacts the company's share price.

Why Nokia is losing share in India

Not enough dual SIM cards: In the past few years, many Indian consumers have started to maintain multiple mobile accounts. The reasons include varying plan costs and the need to have different phone numbers for official and personal use. As a result, handsets with dual SIM card capacity have become very popular. Nokia has lagged its local competitors in bringing dual SIM card handsets to market.

Limited social networking capacity: Indian teenagers have been early and enthusiastic adopters of mobile social networking. Yet Nokia was late to the social networking party. By contrast, rival Samsung has increased its Indian market share from 10% to 17% in the past year, largely due to the success of its popular Corby phones, which feature extensive social networking functionality.

Heavy marketing spend by rivals: New local players like Micromax, Spice Mobile and Karbonn Mobiles have captured around 14% market share since last year. These companies have all invested large sums to market their products in conjunction with popular cricketing events like the Indian Premier League and the Asia Cup.

You can see the complete $12.33 Trefis price estimate for Nokia's stock here.

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