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Can Nokia's go back to The Mobile Phone Market Drive Its Earnings?

Just recently, Nokia revealed that it had signed a tactical arrangement with a recently formed Finland based company called HMD to create Nokia- top quality cellphones and tablets for the next ten years. HMD was established to offer a focused, independent home for a complete range of Nokia branded function phones, smartphones and tablets. Nokia had actually offered its mobile phone company to Microsoft in 2014 and HMD will now acquire the right to use the Nokia brand name on function phones and certain related design rights from Microsoft. It also means to invest over $500 million in the next 3 years to support the international marketing of Nokia branded mobile phones and tablets. While Nokia was when a very popular mobile company, it might not keep up with changing customer needs and was not able to establish itself in the mobile phone market. Mircosoft cannot adeuately monetize this business also, as the iOS-Android jaugernaut continued. Now, via HMD, Nokia-branded feature- and cell phones will reenter the marketplace, targeting secondary, delayed markets beyond those resolved by top-tier suppliers such as Apple and Samsung.

Licensing Model Can Work in Nokia’s Favor

Under its agreement with the recently formed company HMD, Nokia will get royalty payments from HMD for sales of Nokia-branded mobile items, covering both brand and copyright rights and it will provide HMD with branding rights and patent licenses. HMD will be responsible for the heavy lifting which will consist of the hardware and production elements. HMD will take advantage of Nokia s branding and intellectual understands how, which works well with Nokia s licensing company model. Production was not a strong point for Nokia in the past and this arrangement need to operate in the company s favor.

According to our estimates, the licensing segment makes up almost 40% of Nokia s appraisal and we anticipate its licensing earnings to enhance from $1.08 billion in 2016 to nearly $1.5 billion by the end of our projection duration.

If the company s mobile phone segment gets and licensing revenues increase at a quicker speed reaching $2 billion by the end of our projection period, there can be a 10% upside to our price quote.

High Demand for Feature Phone, Low Price Smartphones in Emerging Economies

While Nokia deals with stiff competition from gamers such as Apple and Samsung in the cell phone space, it can capture a considerable share in the feature phone market. While the function phone market is decreasing, it still represents a significant part of the overall mobile phone market in emerging economies. In India, 144 million feature phones were shipped in 2015, a 17% decline from the 180 million figure for 2014, but still representing a significant part of the total mobile phone market of almost 240 million devices in 2015. There is likewise a high demand for low priced smartphones in the region, a market where HMD develop itself with Nokia-branded gadgets. Provided, Nokia s former appeal in the feature phone market (specifically in India), HMD has a huge growth capacity in this region in its 2nd innings. Strong royalty earnings growth for Nokia could result.

Nokia appears to have actually got the mobile phone business design right this time with this arms-length arrangement by means of HMD. Whether the company s previous brand name appeal will drive sales in the 2nd innings stays to be seen. The mobile phone market has developed in the recent years with innovation being the vital motorist for sales. Competitors are far ahead of what Nokia can obtain through this arrangement with HMD. Android powered phones will work to its advantage but catching a good share in the mobile phone market may be a hard request the alliance, unless it has the ability to rapidly capture up on developments and get ahead of competitors in this spa