This past July, Nokia (NOK) stunned Wall Street by increasing feature phone unit sales in the spring quarter by 2.7 million over the previous quarter. Markets had expected feature phone sales to decline by between 2 and 4 million units, and the resulting short squeeze drove the share price up by more than 70%. Last night, Research In Motion (RIMM) pretty much repeated the trick: it sold 7.4 million BlackBerry smartphones while Wall Street had anticipated 6.9 Million units. RIM was up 12% after the first trading hour on Friday, eerily similar to Nokia’s 16% first-hour pop the day after its July report.
What this all demonstrates is how bad Wall Street is evaluating the emerging market trends — particularly Brazil, Africa, Middle East and South-East Asian markets like Malaysia and Philippines. Analysts have a pretty good grip on U.S., Western European and Chinese sales trends thanks to close tracking of retail sales in those markets. But tracking sales in markets like Nigeria or Malaysia is much harder, and nobody has really bothered to construct a solid tracking system in those countries.
As a result, Wall Street has a collective blind spot for emerging market trends. Many look at U.S. and European trends and then simply extrapolate from them, which is a very bad idea indeed.
Nokia pulled off its spring surprise with a new line of dual-SIM models featuring slick designs and some very low-end camera and display specifications. RIM’s surprise was built on the combination of tolerable sales of newish Curve and Bold models and the astonishing longevity of the ancient Curve 8520, a phone that was announced way back in 2009. Nobody would even dream of touching those phones in New York or San Francisco, so analysts were essentially blinded by their focus on local, American high-end trends.
Of course, neither Nokia or RIM is saved by their summer success in Bangalore and Lagos. But evaluating the volume trends of these companies is a whole lot trickier than Wall Street would have you believe.