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TheStreet Open House

Nokia Is More Than Mobile Examining Other Core Competencies

Stocks in this article: AAPL NOK

Investors and consumers alike have focused on Nokia’s failures to compete with the iPhone and with the Android smartphones. At first glance, this appears to be fair- Nokia’s stock is down almost 90% since Apple released the first iPhone. Meanwhile, Apple ( AAPL) is up 335%. Nokia has five revenue sources however, and their other four revenue sources appear promising. In the 3 rd Quarter 2012 Earnings Call, Nokia ( NOK) CEO Stephan Elop named Smart Devices, Mobile Devices, Intellectual Property, Locations and Commerce, and Nokia Siemens Group as revenue streams. I discussed Intellectual Property in a previous article ( click here ) and will focus on Smart Devices in an article which will be published later this week. Mobile Devices, Locations and Commerce, and Nokia Siemens Group are the three most overlooked revenue streams for Nokia, but they will prove integral to the company’s future.

Mobile Devices

Nokia further subdivides its mobile handset business into Smart Devices and Mobile Devices. Mobile Devices, or feature phones still represent almost 50% of phone sales in the United States, and over 50% of phone sales worldwide.   In the mobile device arena, Nokia had long been the industry leader. In fact, it was not until 2012 Q1 that Samsung passed Nokia for the global lead in handset sales. Despite this recent development, basic phone sales remain a profitable operation for Nokia. Nokia commands 35% market share in basic phone sales and their basic phones out sold their smart phones at a rate of 7 to 1 during the 2 nd Quarter of 2012. Basic phone sales, propelled by the popular Asha line contributed 49% more revenue in the 2nd Quarter than smartphone sales.

The Asha phones contain many of the same features as smart phones, such as touch screens, social media integration, limited app support, built in cameras, and even Wi-Fi capabilities. However, These phones run on Nokia’s series40 operating system, which is simpler and cheaper to manufacture than conventional smart phones, allowing Nokia to price these phones very aggressively.

Mobile Devices are key to Elop’s vision for Nokia’s future. In the 2012 3rd Quarter earnings call, Elop, the CEO said, “It is our strategy to connect the next billion people to the internet via our mobile phone products”, a reference to the billions of people in emerging markets who still do not have Wi-Fi on their phones. By adding Wi-Fi to basic phones, Nokia hopes to attract price conscious consumers in emerging markets, and maintain their loyalty in a few years when they seek to upgrade to full-feature smartphones.

Due to Nokia’s dominant position in emerging markets and strong basic phone sales, many analysts have speculated that in the event that Nokia fails and is sold in pieces, its Mobile Device segment may fetch the highest bid.

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