Some thoughts:
1. "The Japanese are Coming! The Japanese are Coming!" This cry has been raised for over a decade in the cellular phone market, yet curiously, Japanese companies' share of the global mobile handset market is not appreciably better today than ten years ago. While bears are quick to point out Nokia's poor progress in penetrating a famously nationalistic market with a unique digital technology and a byzantine distribution structure, they neglect to note the repeated failures of Japanese competitors in Western markets featuring common technology standards (for the most part) and open distribution. The traditional Japanese pattern of using the cut-throat domestic market to hone products for export doesn't work in a world where no other economy on earth uses either PDC or iMode. W-CDMA will be no better, as almost every 3G device will need to roam on 2G for at least a decade. Few Germans, Italians or Brits will have use for a 3G device that roams on PDC.
2. It is not difficult to introduce one hot phone - a la Samsung. To take on Nokia, you must have a whole product line of hot phones - from low end to high end and all points in between. Furthermore, you must replace it year after year with an entirely new line of hot phones. You must also deliver these phones in a variety of technologies, bands, regional variations, and customized roaming configurations.
3. Nokia is superior to its competitors in essentially every aspect of designing, manufacturing and selling mobile handsets. It designs handsets that set trends, with superior styling, performance, functionality and ease of use. It maintains a better than 75% commonality of parts across its product line. It gets them to market faster than its competition. Its flexible manufacturing gives it superior model change over times (5-10 times faster than its competitors). Its forecasting and purchasing skills have kept it on a steady course while others suffer from parts shortages, likely to be followed by inventory bloat. Its brand is one of the world's 5 most valuable. It has rock solid relationships with the world's largest carriers. It enjoys a 5-15% price premium in every segment in most of the world's most important markets. Its end customers repurchase Nokia phones when upgrading 80% of the time. I see all of this as significant competitive advantage.
4. Nokia's 30% global market share is nearly double #2 MOT and over 2.5 timves #3 Ericsson. Matsushita - the leading Japanese supplier - is a fifth the size of Nokia. From this, Nokia enjoys enormouse economies of scale - its costs are at least 12% lower than any other phone maker.
5. Number 2 supplier MOT is having a tough recovery, and has essentially exited the entry level market. Number 3 Ericsson is hemorhaging market share and margins, and does not appear to be taking any steps to stem the bleeding. Number 4 Siemens is taking share by using a follow the leader strategy, copying Nokia 6 months later at a discount. Number 5 Matushita is talking a good game, but I've heard this song before. Number 6 Samsung has had a big hit with a hot high-end CDMA phone, but see point number 2.
Excuse me while I go buy some more NOK shares ahead of what should be a huge quarter. |
