Nokia: Slim Phones, Fatter Margins

Nokia (NYSE: NOK) announced that its average selling price (ASP) has increased in the first quarter from a projected 98 euros to 103 euros.

Nokia Slim Phones, Fatter Margins

Nokia (NYSE: NOK) announced that its average selling price (ASP) has increased in the first quarter from a projected 98 euros to 103 euros. This is great news for the company. Over the last several quarters, Nokia has demonstrated very high revenue growth, but its margins have taken a hit as lower-priced introductory cell phones in China and India reduced ASP and margins.

If higher ASP is the start of a new trend — and I believe it is — net income will likely jump as operational leverage kicks into a higher gear. In addition, Nokia’s media phone division (consisting of higher-end consumer phones) stopped bleeding money over the last couple quarters and went solidly into the green. The division’s operating profit margins of 14% still have plenty of growth ahead of them, since they are much lower than the mobile group’s 17% operating margins.

Even the U.S. market, which Nokia mostly lost a couple years ago to Motorola’s (NYSE: MOT) superior U.S. phones and other competitors’ clamshell designs, seems to be doing better, with more new phones becoming available for the U.S. consumers. However, the United States isn’t crucial for Nokia’s success; it only represents about 8% of Nokia’s sales, and the company’s market-share position in the U.S. has stabilized in 2005. As long as its market share doesn’t take a drastic dive, the rest of the world should carry a growth torch for Nokia.

At today’s valuation of about 18 times 2006 estimates, Nokia is no longer a value manager’s dream per se. But as earnings estimates start climbing, it is likely to turn into the growth and momentum managers’ paradise.

Please read the following important disclosure here.

Related Articles

My thoughts on AI

My thoughts on AI

Innovation disrupts, but it also creates new jobs and improves the standard of living of society. AI will displace many jobs, but it will also empower people with new productivity tools.
What happens in China may not stay in China

What happens in China may not stay in China

To understand what will happen in China and its impact on the global economy, we simply need to invert what happened over the last two decades.
Our investments in oil and natural gas stocks

Our investments in oil and natural gas stocks

I am about to discuss a topic that, for reasons that are unclear to me, has been politicized: oil and natural gas stocks. I am writing this as a pragmatic analyst who looks at two factors: supply and demand.
Unions From Stimulant for the Economy to Cancer

Unions: From Stimulant for the Economy to Cancer

Unions have had a very important role in shaping the US and our laws over the past hundred years. I have read stories about how working in Chicago meat packing plants a century ago was as hazardous as enduring the trenches in World War I. Unions have fixed that.

Leave a Comment