In most parts of the mobile industry, Nokia (NOK) is the player to beat: It’s the dominant player for cheap phones, simple phones, Europe, emerging markets, etc., Which is why it boasts 40% market share. One area where it’s becoming less feared: The high-end smartphone market, where Research In Motion (RIMM) and Apple (AAPL) have established themselves as worthy competitors, and Nokia (NOK) will probably lose ground.
So says American Tech Research analyst Mark McKechnie, who slapped Nokia with a downgrade to “neutral” today.
The thesis, which we agree with: The smartphone industry is growing much faster than the overall mobile phone industry, and it’s the one area where Nokia hasn’t done much lately. McKechnie says about 7% of the phones Nokia sold last year were for $300 or more, which represented about 15-20% of its mobile phone revenue and 20-25% of its gross profit.
RIM, whose BlackBerry smartphones are especially popular among business users, and Apple, whose new iPhone should show be unveiled today, are moving deeper into Nokia territory. If Nokia not only loses market share but starts selling fewer smartphones, period, it could be a real problem. McKechnie figures that every 1% drop in Nokia’s mobile phone operating margin translates to a 10-cent EPS loss for the full year; he’s cutting his 2008 EPS estimate to $2.36 from $2.50 — vs. a $2.54 consensus — and estimates 2009 EPS at $2.44, well below the $2.81 consensus.