Competition Looms Large For Nokia

Nokia Corporation’s (NOK - Analyst Report) woes got even worse as HTC Corporation unveiled its latest smartphone offering running on Microsoft Corporations (MSFT - Analyst Report) Windows Phone8 software, which will be available from this November. Nokia got the second blow in quick succession after rival Samsung Electronics recently launched its Windows Phone8-based smartphones.

Taipei-based HTC Corporation launched the Windows Phone 8X and Windows Phone 8S and places them in direct competition with Nokia, which launched two new Windows Phone8 software-based smartphones earlier this month. According to the company the new phone will be offered by 150 operators in 50 countries around the world and may include 3 of the top 4 U.S. mobile operators. However, HTC’s new offering will take some time to succeed as data from IDC shows that Microsoft only has a 3.5% of smartphone market share while Android and iOS accounted for 68.1% and 16.9% respectively.

HTC has strong foothold in Asia and primarily manufactures phones that run on Google Inc.’s (GOOG - Analyst Report) Android-based operating system (OS). However, the company has lost significant market share to South Korean counterpart Samsung Electronics. The company’s One series, which is an Android OS-based device hasn’t performed as expected. Therefore in the present competitive scenario, HTC plans to add another OS manufacturer under its belt.

At present, Nokia Corporation is in dire straits, losing in every front. It remains severely challenged owing to stiff competition, primarily from Apple Inc.’s (AAPL - Analyst Report) iPhone and an array of other smartphone manufacturers using Google’s Android OS. However, teaming up with Microsoft hasn’t yielded any meaningful result as it still lags behind in the smartphone race.

Apple, which recently launched its much expected iPhone5 has already booked 2 million orders before hitting the stores. Rubbing salt to its already expanded wound HTC’s latest offering will provide stiff competition to Nokia as it will attract the customers, who want an alternative to iPhone. We believe that if Nokia fails to deliver in this holiday season it will be a major blow to its survival strategy.

The current Zacks Consensus Estimate for Nokia Corporation is pegged at a loss of 13 cents for the third quarter of 2012 with a growth rate estimate of (420.0%). For 2012, the Zacks Consensus Estimate stands at a loss of 39 cents with a growth rate of (202.1%) while for 2013, the Zacks Consensus Estimate stands at a loss of 2 cents with a growth rate of 94.1%.

Recommendation:

We retain our long-term Neutral recommendation on Nokia Corp. Currently, it has a Zacks #3 Rank, implying a short-term Hold rating.