It's been a great year for Nokia (NYSE: NOK)'s investors, with the stock up about 76%.
But at its Investor Day conference, things were not so sanguine. The company announced that its operating margins should be 16%-17% over the next year or two – which was a bit disappointing.
Yet, the company expects to gain market share (especially in emerging markets like China), as well as introduce new content services. For example, the company struck a deal with Universal Music for free unlimited music downloads, so as to blunt Apple (NASDAQ: AAPL)'s iPhone.
I had a chance to interview Frank Dickson, who is the Chief Research Officer of MultiMedia Intelligence. According to him:
"Nokia is seemingly taking pages from the lesson book developed by IBM (NYSE: IBM). IBM was once the dominant PC manufacturer. As open platforms and technology vendors leveled the playing field, IBM lost its position to lower cost manufacturers. However, IBM was able to leverage its hardware position to create a value-added services business. Nokia, in turn, is leveraging its dominant position in handsets to create a value-added services offering to the end consumer.
"However, Nokia's strategy is fraught with risk as their efforts are putting it in competition with its direct customer in some cases, the operator. Voice commoditization and falling voice ARPU (average revenue per user) are driving a shift in wireless operators to focus on data revenue models and services to reinforce ARPUs. The shift to data revenue includes the development of mobile premium content, including mobile music, games, video and TV and an array of new data applications, including location-based services, mobile banking, mobile wallets, and enterprise productivity applications. Nokia's strategy -- if totally successful -- would usurp much of the value-added content and services revenue and relegate the operator to a bandwidth provider (or dumb pipe if one choices to not be politically correct). It is safe to say that the operators will be resistant to this, to put it mildly."
Tom Taulli is the author of various books, including The Complete M&A Handbook
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