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.
Locations and Commerce In 2007 Nokia acquired NAVTEQ for $8.1Billion and created their Location and Commerce segment. This has made them one of the global leaders in mapping and location based technologies, especially with built in GPS systems in cars. In fact, Nokia currently manufactures navigation systems inside 4 out of every 5 cars equipped with in-dash navigation. This dominant enterprise market position seems likely to strengthen, as according to the earnings conference call, BMW, Mercedes, Pioneer, Volkswagen, Hyundai, Garmin, Groupon Microsoft and Yahoo have all announced plans to start using Nokia Location solutions or added on additional location services. In addition to the commerce solutions, Nokia is using their 25 years of experience in mapping and extensive infrastructure to differentiate their smart phones through superior location services. Nokia also recently launched a Mapping app on iOS in response to consumer dissatisfaction with the new Apple Mapping. Nokia Siemens Network The third forgotten operating segment for NOK is Nokia Siemens Network, or NSN. This segment has been in the news recently as NOK has been restructuring aggressively. Earlier this week, Nokia Siemens Network announced the sale of its Fiber Optics unit to Marlin Equity Partners. This move will transfer 1,900 employees to Marlin Equity Partners and provide NSN with much needed cash as they continue divesting their non-core assets. So far, the restructuring, which began in 2011, has gone well. Nokia Siemens Network posted a record quarter this past quarter, as net sales increased year over year and quarter over quarter to $3.5B Euros. NSN’s corporate strategy goes beyond simple cost cutting. NSN intends to refocus on product quality, innovation, and key countries such as Korea, Japan and the US. NSN believes that continued successful execution of this strategy will allow Nokia to strengthen its position as an industry leader in LTE and innovate further in mobile connectivity. Interested in learning more? Click here for an overview of Nokia’s key ratios, or here to see their balance sheet!
By David EmamiThis article is part 2 of 4. Next, part 3: Emerging Markets