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Nokia Betting on $20 Handset as It Loses Ground on iPhone

*from www.bloomberg.com, April 29, 2013 (To view original article click here.)

Take Away #1: As Nokia Oyj struggles to catch Apple Inc. (AAPL) and Samsung Electronics Co. on the market for smartphones costing $500 or more, it’s counting on a bare-bones handset that sells for just $20 to give it an edge.

Key Facts and Figures:

  • Priced 97% below the latest iPhone, the Nokia 105 features preloaded games, a color screen, a radio, a speaking clock, and a flashlight.
  • The phone, Nokia’s cheapest ever, has been available for a few weeks in India and Indonesia and will soon start selling in Europe.

Take Away #2: Even with its bargain basement price, the Nokia 105 is critical to Nokia’s entire handset business.

Key Facts and Figures:

  • Nokia reported April 18 that it sold about 11 million fewer mobile phones in the first-quarter than analysts had projected.
  • Sales of basic phones plunged 21% to 55.8 million units.
  • A failure to revive the low-end business would leave Nokia without an important source of cash as it seeks to develop devices to challenge the iPhone and Samsung handsets running Google Inc.’s Android.

Take Away #3: While demand for the iPhone and Android devices have made smartphones the fastest-growing part of the market, basic handsets still make up more than half of units sold.

Key Facts and Figures:

  • That means hundreds of millions of phones each quarter.
  • The low-end market has been dominated by Nokia until Asian manufacturers such as ZTE Corp., Huawei Technologies Co. and Samsung started challenging it more aggressively.
  • Nokia says the 105 will be profitable, but declined to provide any details.
  • Liberum estimates Nokia will enjoy a margin of about 20% on the device.
  • Of the 336 million handsets Nokia sold last year, only about 10% were smartphones.
  • Basic models accounted for 31% of Nokia’s revenue, versus 218% for smartphones.
  • Network equipment made up most of the balance.

Take Away #4: Nokia had more than half of the mobile handset market before Apple introduced the iPhone in 2007.

Key Facts and Figures:

  • Nokia shares have fallen more than 80% since then, while Samsung has risen 154% and Apple has quadrupled.
  • After five consecutive annual losses, Nokia is down 14% this year through April 16.
  • The stock rose 0.7% to 2.52 euros at 4:32 p.m. in Helsinki, valuing the company at 9.44 billion euros.

Take Away #5: Nokia is counting on cheaper phones like the 105 to build trust in the company’s brand in growth markets such as India and China.

Key Facts and Figures:

  • The company reasons that customers who buy a 105 will stick with Nokia when moving to more expensive devices in the years ahead.
  • “The low-end, high-volume part of the mobile-phone market is a huge opportunity for Nokia in developing countries,” said Francisco Jeronimo, an analyst at IDC in London.
  • “These users will be likely to upgrade to more expensive phones over time, so it’s a good strategy to keep a high market share in this segment,” says Jeronimo.
  • The 105 is “very competitive” and should help Nokia with its low-end recovery effort, said Neil Mawston, an analyst at researcher Strategy Analytics in London.
  • A predecessor to the 105, called the 1280, sold more than 100 million units over three years.
  • Simpler phones have “been the bedrock of Nokia’s business for the past decade,” Mawston said.

Take Away #6: Nokia’s expertise in handset production makes it possible to turn a profit on a $20 phone, Jeronimo said.

Key Facts and Figures:

  • For years, the world’s largest mobile-phone maker and now No. 2, Nokia made more than 600,000 phones a day in seven factories around the world, using parts from suppliers it knows well.
  • Chinese rivals may be able to make a device as cheap as the 105, but they lack the features and services from Nokia, Jeronimo said.
  • The candybar-shaped 105 is 25% cheaper than the Nokia 1280, yet its battery lasts 56% longer — 35 days.
  • The phone is resistant to water and dust and comes with text- message-based tools that teach English and provide basic health- care advice.
  • Despite such features, the company sought to simplify the phone’s software, which in turn allowed it to use cheaper parts, said Dirk Didascalou, head of R&D for Nokia’s mobile-phone business.

Take Away #7: Even as the slump in simple handsets has stolen investor attention, Nokia’s main goal is to make a full recovery in smartphones, where profit margins are widest.

Key Facts and Figures:

  • Apple (AAPL)’s 32-gigabyte iPhone 5 sells for $750, while Samsung’s Galaxy S4 goes for about $640 and Nokia’s flagship Lumia 920 is $450.
  • Nokia sold 5.6 million Lumia phones, which run on Microsoft Corp.’s Windows, in the first-quarter up from 4.4 million in the previous three months.
  • However, the iPhone and Android control more than 90% of the smartphone market, while Nokia has just 3%, according to Strategy Analytics.

*To view original article from www.bloomberg.com click here.

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