Don't Miss Out on This Huge Rebound
Callum is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I've long been a Nokia (NYSE: NOK) bull, as seen in the numerous articles I've posted about Nokia and the Lumia 920, and I'm happy to tell all the longs that we were correct. Nokia's stock has almost tripled off its low of $1.63 a share, now hitting $4.70 after it announced it had sold 4.4 million Lumia devices out of 6.6 million smartphones overall (even higher if you reclassify Asha phones as smartphones). That marked a 51% growth from Q3 when Nokia sold 2.9 million Lumia's. It seems that Microsoft's (NASDAQ: MSFT) foray into mobile has finally paid off, as has Nokia's. Don't forget that Lumia 920 phones will also start selling in China at a cost of 1 yuan, or as I like to put it "free." Investors are now optimistic on Nokia, so the shorts will have to think twice before pushing the stock down.
China Mobile (NYSE: CHL) is going to heavily subsidize the Lumia 920T phones, which is going to be huge for Nokia. If Chinese consumers sign up for a 2-year plan, then they can pretty much get the phone for free. Apple's (NASDAQ: AAPL) iPhone isn't subsidized and will have to compete at a hefty $740 price point. Keep in mind that China's average wage for urban households at non-private companies was $6,717 in 2011. This means that most won't want to spend such a large chunk of their income on a phone and plan and will want to opt for a cheaper alternative. China Mobile, the largest telecom company in China, has 667.2 million mobile subscribers (as of March 2012) and 59.6 million 3G subscribers (March 2012). With China's wages rising at a rapid rate each year (up 8.5% in 2011 when adjusted for inflation for non-private workers and up 12.3% for private workers); Nokia has a lot of potential to gain a foothold in a rapidly growing market. Right now China makes up 22% of global smartphone sales and the US makes up 16% (as of Q1 2012 according to Canalys), so this growth catalyst is one every investor should look at.
Budget smartphone growth
Nokia is also seeing strong growth in its Asha lineup, and in its latest quarter it sold 9.3 million of them. This budget "smartphone" is growing in popularity in Latin America, India, and China. Sales were up 43% quarter over quarter, with 6.5 million sold in Q3. Nokia competes with low end Android systems from Google (NASDAQ: GOOG) in emerging markets, and over the years has been getting hurt pretty hard. Android has been gobbling up market share in emerging markets, increasing its market share in Mexico to 37% from 19% a year earlier. In Brazil where Android phone prices have been slashed, Android's market share has grown from 20% to 47% in a year. What enables Android to do this is price. The price on an iPhone is $986 to $1,480 in Brazil, $592 if subsidized. In comparison Android devices can be as cheap as $148, which is why Apple is selling its later models at a much lower price point and why it is rumored to be making one specifically for emerging markets.
Nokia has a similar advantage in price, but the Asha is more on a premier feature phone than a low end smartphone. Q4 marked a turnaround by Nokia, but it is questionable if this will hold up in Q1 and beyond. I don't think Nokia can do too much to compete with Google, due to Google's deep pockets and the swarm of companies that use Android and make cheap phones, but positive news in this division could provide Nokia with more upside potential.
Microsoft stands to gain a lot if the Lumia 920 is a success. Not onyl will it make money off of the OS, but there will also be a boost in Bing traffic as Bing is heavily integrated into Windows phones. Furthermore, it will complete its ecosystem. Every major tech player is trying to create this little world of their gadgets and services, which is why Apple is rumored to be creating its own TV and why Google created Google Plus.
Everyone was down on Microsoft and Nokia. Many thought that Microsoft would never really be able to enter the smartphone market and that Nokia would end up either being bought out by Microsoft and being as useful as AQuantive or just going bankrupt. Now we can clearly see the table has been turned and the cards in the deck reshuffled. Nokia still has a long way to go to become profitable again, but the future is looking brighter. Still bullish on Nokia, and I'll keep updating you along the way.
callumturcan owns shares of Apple. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!