A surge in demand from India and China this decade cemented the Finnish
company's position as the dominant maker of wireless handsets. Now,
chief executive Olli-Pekka Kallasvuo has designated Africa as his
company's next target.
As in most developing regions, owning a cellphone in Africa was viewed
as such "a necessity" that growth would not be stymied by money being
diverted to pay record prices for staple foods, Kallasvuo said in
April. Already the fastest-growing continental market, Africa still has
the lowest cellphone penetration, at below 30 percent.
This growth potential may help Nokia sustain sales through the slowdown
that has gripped Europe and the US this year and sent the company's
shares down 32 percent.
Africans bought 33 million handsets in the first quarter, up 37 percent
from a year earlier, according to researcher Strategy Analytics. That
is not far short of the 37.9 million purchased in North America, where
industry shipments fell 4.5 percent.
"Nokia is better positioned than its competitors to weather an economic
slowdown," said Ittai Kidron, an analyst with Oppenheimer in New York.
"A European slowdown will hurt, but we believe Nokia's results over the
past year show that it can successfully manage the transition toward
lower-tier and more price-sensitive emerging markets."
Disproportionate spend
The African market will grow by 33 percent this year, projects Neil
Mawston, an analyst for Strategy Analytics. Nokia claims it commands 55
percent of sales in Africa and the Middle East.
"People in emerging markets spend disproportionate amounts" of their
income on cellphones and "are likely to continue to do so", he says.
Last year Kallasvuo said he saw the potential in Africa as similar to
India's several years ago and China's at the turn of the millennium.
Those are now Nokia's two biggest markets, accounting for almost a
fifth of sales.
Nokia's first-quarter sales rose 34 percent in China and 44 percent in Asia-Pacific, including India.
In April the firm reiterated estimate that industry shipments in the
two markets would grow more than 15 percent this year, but trimmed its
forecast for overall market value based on the weakening dollar and
slowdowns in the US and EU.
Shipments in western Europe fell 16 percent in the first quarter, the
first decline since at least 2001, researcher Gartner said this week.
Nokia is banking on consumers in developing countries eventually buying
more expensive phones as their spending power increases.
While models costing less than E50 (R600) make up half of Nokia's total
volume, the amount paid for its phones in China in the first quarter
surpassed its global average of E79.
Kallasvuo is looking for a similar trend in Africa.
"Growth is strong in emerging markets," says Petri Ukkola, a fund
manager at Tresor Investment Management. He says Nokia, trading at 9.7
times earnings, is cheap compared with other technology stocks.
Analysts expect Nokia's stock to climb 31 percent in the next year.
Food threats
Working against Kallasvuo's scenario is the soaring cost of food and
the threat of dwindling supplies. Global stocks are at their lowest
since the 1980s, according to the UN's Food and Agriculture
Organisation.
The Organisation for Economic Co-operation and Development said this
week that the price of maize, a sub-Saharan Africa staple, might reach
$166.60 a ton in a decade, up 21 percent from a forecast last year.
Nokia had weathered past economic slumps "much better than its
competitors", said Patrick Nielsen, a fund manager at Mapfre Inversion.
But this time might be worse as consumers were being hit so hard.
Norway's Telenor, which has 147 million customers mainly in emerging
markets, said in April that higher food prices had made it more
"cautious" about its cellular operations in Bangladesh, although it had
not witnessed any slowdown in Malaysia or Pakistan.
To date most of the growth in Africa has come from the northern rim and
South Africa. Capgemini managing consultant Ashish Sidhra predicts
demand in sub-Saharan Africa will lead a doubling in continental
cellphone usage within the next three years.
Cellphones help people improve their status, Sidhra says. While food
prices will affect the decision to buy a phone, operators are packaging
prepaid minutes at lower prices to compensate.
Owen Makhubela, a Johannesburg security guard hailing from Limpopo, says workers need to provide phone contacts to employers.
"You can't trust someone to keep a message and tell you in time,." he
says. "You can't write a letter home anymore, it takes too long."
Form : http://www.busrep.co.za/
company's position as the dominant maker of wireless handsets. Now,
chief executive Olli-Pekka Kallasvuo has designated Africa as his
company's next target.
As in most developing regions, owning a cellphone in Africa was viewed
as such "a necessity" that growth would not be stymied by money being
diverted to pay record prices for staple foods, Kallasvuo said in
April. Already the fastest-growing continental market, Africa still has
the lowest cellphone penetration, at below 30 percent.
This growth potential may help Nokia sustain sales through the slowdown
that has gripped Europe and the US this year and sent the company's
shares down 32 percent.
Africans bought 33 million handsets in the first quarter, up 37 percent
from a year earlier, according to researcher Strategy Analytics. That
is not far short of the 37.9 million purchased in North America, where
industry shipments fell 4.5 percent.
"Nokia is better positioned than its competitors to weather an economic
slowdown," said Ittai Kidron, an analyst with Oppenheimer in New York.
"A European slowdown will hurt, but we believe Nokia's results over the
past year show that it can successfully manage the transition toward
lower-tier and more price-sensitive emerging markets."
Disproportionate spend
The African market will grow by 33 percent this year, projects Neil
Mawston, an analyst for Strategy Analytics. Nokia claims it commands 55
percent of sales in Africa and the Middle East.
"People in emerging markets spend disproportionate amounts" of their
income on cellphones and "are likely to continue to do so", he says.
Last year Kallasvuo said he saw the potential in Africa as similar to
India's several years ago and China's at the turn of the millennium.
Those are now Nokia's two biggest markets, accounting for almost a
fifth of sales.
Nokia's first-quarter sales rose 34 percent in China and 44 percent in Asia-Pacific, including India.
In April the firm reiterated estimate that industry shipments in the
two markets would grow more than 15 percent this year, but trimmed its
forecast for overall market value based on the weakening dollar and
slowdowns in the US and EU.
Shipments in western Europe fell 16 percent in the first quarter, the
first decline since at least 2001, researcher Gartner said this week.
Nokia is banking on consumers in developing countries eventually buying
more expensive phones as their spending power increases.
While models costing less than E50 (R600) make up half of Nokia's total
volume, the amount paid for its phones in China in the first quarter
surpassed its global average of E79.
Kallasvuo is looking for a similar trend in Africa.
"Growth is strong in emerging markets," says Petri Ukkola, a fund
manager at Tresor Investment Management. He says Nokia, trading at 9.7
times earnings, is cheap compared with other technology stocks.
Analysts expect Nokia's stock to climb 31 percent in the next year.
Food threats
Working against Kallasvuo's scenario is the soaring cost of food and
the threat of dwindling supplies. Global stocks are at their lowest
since the 1980s, according to the UN's Food and Agriculture
Organisation.
The Organisation for Economic Co-operation and Development said this
week that the price of maize, a sub-Saharan Africa staple, might reach
$166.60 a ton in a decade, up 21 percent from a forecast last year.
Nokia had weathered past economic slumps "much better than its
competitors", said Patrick Nielsen, a fund manager at Mapfre Inversion.
But this time might be worse as consumers were being hit so hard.
Norway's Telenor, which has 147 million customers mainly in emerging
markets, said in April that higher food prices had made it more
"cautious" about its cellular operations in Bangladesh, although it had
not witnessed any slowdown in Malaysia or Pakistan.
To date most of the growth in Africa has come from the northern rim and
South Africa. Capgemini managing consultant Ashish Sidhra predicts
demand in sub-Saharan Africa will lead a doubling in continental
cellphone usage within the next three years.
Cellphones help people improve their status, Sidhra says. While food
prices will affect the decision to buy a phone, operators are packaging
prepaid minutes at lower prices to compensate.
Owen Makhubela, a Johannesburg security guard hailing from Limpopo, says workers need to provide phone contacts to employers.
"You can't trust someone to keep a message and tell you in time,." he
says. "You can't write a letter home anymore, it takes too long."
Form : http://www.busrep.co.za/
