Nokia Corporation (ADR) (NYSE:NOK) reported sales that worried investors. Not because its new Lumia was less successful than hoped, but because competition in the company’s stronghold caused low-end handset sales to wane. But don’t worry, Nokia Corporation (ADR) (NYSE:NOK) is fighting back.
The Low End
Nokia Corporation (ADR) (NYSE:NOK) was once the most dominant cell phone maker in the world, but Apple Inc. (NASDAQ:AAPL)’s iPhone changed that quickly. However, the iPhone is at the very top of the cell phone market, which means that Apple Inc. (NASDAQ:AAPL) and new entrants in the smart phone space hadn’t been competing at the low end.
That left Nokia Corporation (ADR) (NYSE:NOK) with an important market position serving the low end of the market with relatively cheap phones. While that market isn’t notable in the United States, it is massive in less affluent countries.
So, with a big market share in emerging economies, Nokia Corporation (ADR) (NYSE:NOK) remains a large cell phone maker–it just hasn’t been an important innovator. In fact, it gave up on its own mobile operating system (OS). That was something of an admission that Nokia Corporation (ADR) (NYSE:NOK) was no longer at the forefront of the industry.
Scrapping its own mobile OS and starting from scratch was a big setback. To try to speed things up, Nokia partnered with Microsoft Corporation (NASDAQ:MSFT) on the Lumia. Microsoft Corporation (NASDAQ:MSFT) handled the OS, and Nokia focused on designing the phone.
Although the jury is still out on the success of the phone in mature markets, it has for the most part been well received. However, the company has spent so much time and effort on getting that phone right, that it let its dominance of the low end slip.
A Big Problem
With Asian competitors pinching the company’s market share in emerging markets, the long-run story behind Nokia gets weaker. Essentially, the emerging markets in which it is a leader can’t yet support notable sales of high-end phones.
That means that cheaper phones are the main market. However, these nations are steadily growing. While they can’t afford high-end phones today, they will be able to at some point in the not to distant future. Nokia, being a trusted brand, would arguably have a leg up on competitors when its customers can afford to trade up.