I see a speculative investment opportunity in former highflier and cell phone maker Nokia Corporation (NYSE/NOK). The company appears to have resurged in spite of tough competition from the likes of Apple Inc. (NASDAQ/AAPL), Samsung Electronics Co., Ltd., BlackBerry’s (NASDAQ/BBRY;TSX/RIM) “BB10” phones, and phones based on Google Inc.’s (NASDAQ/GOOG) “Android” operating system. At stake is a massive global market that is estimated to see over one billion smartphones shipped in 2014, according to International Data Corporation (IDC). (Source: “Worldwide Smartphone Shipments from 2010 to 2016,” Statista, last accessed February 8, 2013.)
While Nokia has seen about 90% of its market value disappear since the launch of the Apple “iPhone” five years ago, the company’s venture with Microsoft Corporation (NASDAQ/MSFT) in building the new smartphones based on Microsoft’s “Windows 8” has shown encouraging signs; in my view, there may be an investment opportunity here with Nokia. (Read “Another Lost Decade for Microsoft?“)
Nokia’s new “Lumia 920” has drawn some rave reviews and is faring well, especially in Europe. The Lumia also uses the cheaper “Windows 7.5” mobile platform in the emerging markets, since this platform can be run on less advanced smartphones.
Nokia also has a strong portfolio of patents, which makes it an investment opportunity.
The price chart of Nokia shows the strong rally since the start of 2012, based on my technical analysis. If Nokia can hold the upward trendline, as indicated by the upward-sloping blue line on the chart below, we could see the stock make a move towards $6.00, to $7.00, and then to above $10.00, a level last encountered in February 2011; this would make the stock a decent trading and investment opportunity.
Chart courtesy of www.StockCharts.com
Just imagine the investment opportunity given the size of the global cell phone market. There are an estimated five billion cell phone users worldwide, according to the United Nations. That is a lot of phones, so the battle for market share will be intense. It will come down to which company offers the best combination of the most advanced phones and the cost factor. This is where I feel Apple, at this point, will find it difficult to compete in the massive emerging markets; that is unless the company decides to make a cheaper iPhone specifically for these cost-conscious regions. On the other hand, Nokia is experienced in the emerging markets, having been building lower cost phones and smartphones there for years with a strong following; this is why Nokia is viewed as an investment opportunity for the speculator.
China is, by a wide margin, the top market for Nokia, as it’s more than double the size of the next biggest market—India—based on data from Nokia. The United States is Nokia’s fifth-biggest market, but it only represents about 22% of the size of the Chinese market. The fact that Nokia has such a large market in China alone makes the stock an intriguing investment opportunity.
The investment opportunity is based on the fact that the demand for smartphones will continue to grow rapidly as we see more and more content and applications move into the mobile phone area. Mobile broadband is becoming more significant. There are estimated to be over one billion broadband subscribers in 2010, according to the International Telecommunication Union. This is why smartphones are becoming more critical products in the global marketplace and why the Microsoft-Nokia venture needs to work.
While the cards are somewhat stacked against Nokia, the relatively strong market acceptance of the Lumia 920 is looking good; and it gives us some confidence that Nokia may still have some fight left in it, representing a speculative investment opportunity.