One question is on everybody’s lips following Nokia’s dramatic profit warning
last week: is Nokia on the same slippery slope that took Motorola from a 22
per cent market share in 2006 to a 4.5 per cent market share in 2009?
Motorola and Nokia have a lot in common. They are big mobile phone makers that
stopped making phones people wanted to buy. Motorola’s mobile devices
operating margin fell from 10 per cent in 2005 to -18 per cent in 2008, a
worrying fact for Nokia’s investors.
Profitable base
But Nokia started from a more profitable base: its mobile phones operating
margin was 22 per cent in 2007 (and is heading for a big fat zero this
quarter). It also had a bigger and more diversified market share: more than
40 per cent of Motorola’s customers were in the US in 2006; Nokia sells
phones all over the world.
Also, Motorola had lost so much cachet and market share by the time it adopted
the Android operating system that it could not regain what was lost.
By contrast, Nokia still has a quarter of the market and a brand that is not
yet trashed. Take one unscientific measure: people still Google the word
“Nokia” more than the word “Android”, though the latter is closing the gap
and has outstripped Nokia in China and other parts of the Asia-Pacific
region.
Phone operators
Mobile phone operators also want Nokia to succeed. They like the idea of a
third operating system - Nokia’s phones will run on software made by
Microsoft - to counter the dominance of Apple and Google.
Of course, even with these advantages - and about €6bn in net cash (worth
about €1.60 a share - 35 per cent of Friday’s share price) - Nokia could
still mimic Motorola’s painful demise if it fails to produce Microsoft-based
phones that are as good as the competition.
But the good news for investors is it has not yet passed the point of no
return.
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