Posts Tagged ‘asia’

Nokia to remain the market leader … helped by Emerging Market expansion

nokiaNokia the worlds biggest manufacturer of mobile devices , still enjoys a 40% global market share, dwarfing it’s nearest competition; Motorola (NYSE : MOT), Sony-Ericsson, Samsung, & LG. The company is particularly strong on an international basis, with top market share in practilally all markets served. More importantly, from a MyStockVoice perspective, 80% of sales come from outside the US. With recent advances in 3G licensing in Asia, notably Vietnam, India & China, Nokia (NYSE : NOK) looks well set to come out as the real winner from the mobile broadband explosion.

The company’s scale allows it to produce what is now regarded as a commodity product (low-end cell phones) at a much cheaper prices than it’s competitors. Nokia’s dominace in the mobile handset market sees it  earning roughly 15% profit even on entry-level units, while it’s most profitable competitor, Samsung, reputedly earns slightly above 13%.

Nokia is also working on growing it’s service offerings, expanding into music & games, whilst adding compatible location based services (LBS)with the recent acquisition of NAVTEQ. The strategy being that Nokia can earn incremental revenue from these services whilst building brand loyalty/customer lock-in, as users become accustomed to Nokia’s services & will opt to replace their existing handset & existing services with another Nokia model instead of migrating to a competitor.

From a financial point of view, Nokia holds an enviable position. The current balance sheet shows €5.5 billion against about €4.4 billion in debt, 70% of which is in short term notes.  Return on capital is pretty impressive to date, since 2004, ROIC is over 160%, & standard return on capital is equally impressive at 75%. Operating margins run at circa 13%, with free cash flow at 9%. For the long term investor, Nokia also has a track record of delivering a dividend yield of close to 4%. That said, the dividend rate was cut by 20% in January to reflect the impact of the gloabl downturn.

Nokia is clearly facing some major competition in the high end “smartphone” category, which is judged to be the fastest growing sub-sector of the market. While Nokia is still the world’s biggest smartphone maker, competitors Apple (Nasdaq : AAPL) with the iPhone & Research in Motion (Nasdaq : RIMM) with its Blackberry range have both  quickly gained market share , whilst Asian manufacturers such as HTC are also proving to be a thorn in the flesh.

My take is that if Nokia can crack some key markets in SE Asia, India & China, they will be able to surpass their upstart rivals, although in China, native handset makers will obviously have a first pass; e.g. TD-SCDMA with China Mobile . Nokia has a long track record with Vodafone, Orange & Telefonica, all of whom are increasingly active in Emerging Markets. With a retrospective look at the last quarters results & with the current overly sold price, I am looking at Nokia as a winner, 6 moth personal target price of $18.50 on the ADR

China Mobile starts to push 3G strategy & partnerships, good news for Dell ?

china-mobile1Following on from the 3G licence distribution that we reported on MyStockVoice late last year, China looks to 3G market to stimulate economy, market leader China Mobile has unveiled a number of new partnerships & device releases that show the direction it is taking in the medium term. After the on-off discussions with Apple regarding the iPhone, the wireless carrier seems to be pitching heavily into the PC hardware vendors, as well as choosing suppliers to expand its TD-SCDMA network to cover rural mainland China.

China Tech News reports this morning that China Mobile (NYSE : CHL) has selected six PC makers, including Lenovo Group, Founder Technology, Tongfang, Haier, HP, & Dell, as its 3G netbook partners. What is more interesting is the strategy behind this, following Western mobile operators who have been pushing mobile broadband dongles since 2007, China Mobile will offer subsidies to users who buy its 3G netbooks. Consumers will be able to enter  the serial numbers of the device and the numbers of the built-in TD-SCDMA module of the netbook, with their mobile phones to activate the 3G services.

Dell (Nasdaq : DELL) have already announced their first joint hardware offering with CHL, the Inspiron Mini 10. Dell is obviously keen to tap into the huge potential of the Chinese mobile internet market, IDC has forecasted that the market will explode by 276% in 2009 alone. This carries on from existing deals Dell has struck with Vodafone, AT&T, Starhub & Maxis.

“Dell actively listens to its customers to provide highly stylized, personalized products with unparalleled connectivity. China Mobile’s fast mobile broadband 3G service perfectly complements the wireless and entertainment capabilities of the sleek, portable Inspiron Mini 10.” — Michael Yang, vice president & general manager of Greater China Consumer

“China Mobile is China’s only operator solely focusing on mobile communications with the world’s no. 1 network and the largest customer base. We are happy to add Dell’s Inspiron Mini 10 to our growing number of 3G mobile broadband devices, providing travelers and social networkers with easy and convenient wireless Internet access.” -– He Zhili, Marketing Director of CMCC

Now with the Chines propensity to build homegrown standards, TD-SCDMA being a prime example, China Mobile looks as though it is ready to turn its back upon the traditional handset vendors. Rumours abound that it is looking into releasing its own mobile operating system, Open Mobile System (OMS), which is based on Google’s Android, however utilising operator specific variations at all layers. In a final snub to Apple, CHL is also rumoured to be building it’s own app store to support OMS. As Dell has not made made any significant inroads, to date, into the Western mobile markets, China Mobile could provide a much needed distribution channel. There are positives for both parties, Dell is new to the handset game & so would be expected to be flexible in how it develops handsets, China Mobile has a distribution base of more than 470 million subscribers, a very juicy number.

Market research firm Interfax has reported that Lenovo has already been tapped up to partner with China Mobile on an Android based handset :

“We will collaborate with China Mobile to launch an Android phone, and we will cooperate closely over research and development relating to the open source platform,” Wang Yan, a brand manager at Lenovo Mobile, said.

Meanwhile, China Mobile is forging ahead with its network rollouts, AsiaInfo Holdings, Inc. (Nasdaq : ASIA) has announced that it has been selected to provide networking equipment with 11 China Mobile subsidiaries, to support China Mobile’s Phase II TD-SCDMA rollout. The new system will support wireless broadband service, data card service, mobile video and other 3G-related services. In 2007, AsiaInfo provided BOSS software for Phase I of China Mobile’s TD-SCDMA network construction, thus becoming the first vendor to develop billing and customer relationship management software to accommodate China’s 3G rollout.

“Pushing forward the construction and operation of the TD-SCDMA network is one of China Mobile’s key goals for 2009, and our longstanding relationship with the carrier brings us a number of opportunities in the 3G realm,” said Steve Zhang, AsiaInfo’s president and chief executive officer.

Spending on wireless infrastructure equipment in China is expected to rise to $6.2Bn in 2009, up 13.2% from $5.5Bn in 2008. In contrast, global carrier spending on wireless infrastructure gear in 2009 is expected to decline by 3.5%to $39.7Bn, down from $41.1Bn in 2008. It is clear that a lot of companies are banking on 3G in China & China Mobile’s dominance of the sector to see them through to 2010, when the wireless markets will look to expand in resppnse to consumer demand. Dell’s courting of China Mobile could be a big pay day for the computer manufacturer, as traditional routes to market dry up on declining retail spending in Western markets, China could provide a much needed fillip. Personally I am not ready to move on Dell just yet, however, it will be interesting to see what falls out of this relationship & I will be monitoring closely.