Say Your Prayers, Nokia

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

To have any chance of competing in the smartphone market right now, Nokia (NYSE: NOK) has to compete on price.  I wrote about Nokia’s strategy in my recent post “Is Nokia Trying Out a New Profit Model?”

Once the leader in handset-making, Nokia fell to the wayside as it struggled with increased costs and its archaic Symbian operating system.  Will Nokia turn itself around?

Carriers

Nokia’s Lumia 920 phone, an innovative device that is attracting attention, sells only through AT&T (NYSE: T). The structure is a positive for AT&T, which sells the phone for just $99 with a two-year contract, but dealing solely with AT&T hurts Nokia’s market share. 

In the third quarter, Nokia sold just 300,000 phones in North America, severely hampering its growth prospects.  To make matters worse, AT&T, which sells its Lumia 920 and 820 phones, brought on just 151,000 net new subscribers in the third quarter, compared to 1.5 million postpaid wireless subscribers in the quarter for Verizon (NYSE: VZ). What is the solution?

Add Verizon.  As I mentioned in my prior post, Nokia created the Lumia 822 exclusively for the Verizon network.  The phone sells for just $99 with a two-year contract, and it gives Nokia the opportunity to tap into Verizon’s growing subscriber base.  In addition to Verizon, Nokia also has its Lumia 810 phone for T-Mobile.

Late to the Game

Nokia’s cost strategy is a good one.  Its Lumia 810, 822, and 920 phones sell for just $99 with a two-year contract, and its Lumia 820 device sells for just $49 with a two-year contract.  Meshing low prices, sleek designs, and incredible new features should automatically give Nokia’s new phones huge market share in the fourth quarter, right?

Wrong.  The problem is that Apple’s (NASDAQ: AAPL) iPhone 5 and Samsung’s Galaxy SIII beat Nokia to market by many weeks.  Mobile subscribers will still have their contracts expiring this quarter, where they can buy Nokia phones, but many are already locked into deals with Apple or Samsung products.  But don’t worry, Nokia may still have a saving grace.

Nokia’s Last Prayer

Aside from lower prices, Nokia has one giant in its corner – Microsoft (NASDAQ: MSFT)The Wall Street Journal explains:

This gives Nokia a natural ally.  Microsoft badly needs the Lumia to succeed so that it can establish its own foothold in mobile devices.  These offer far more growth potential than PCs, the traditional delivery vehicle for its software.

Aligning itself alongside Microsoft Windows 8 gives Nokia a powerful “brand name.”  But more importantly, Nokia benefits from Microsoft’s deep pockets.  Over the past few weeks I have noticed a flurry of ads for Windows 8 products – from the Surface tablet to other devices.  Thus Nokia essentially gets free advertising because it touts its new Windows 8 operating system.

Boost for Carriers

Overall, Nokia is hopefully saying its prayers if it hopes to regain its former glory as a mobile maker.  The carriers have a vested interest in seeing Nokia succeed – they pay large fees to stock the iPhone, which is most recently evidenced by Sprint’s $15 billion dollar deal.

Price alone is a bad battle to fight.  It’s a good way to ruin a business.  But allying Nokia’s low-cost, stellar products with Microsoft’s ad dollars and Windows 8 operating system might just be Nokia’s saving grace.  And I hope that it works – because when my mobile contract expires I would like a low-cost Nokia phone.


ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple, Microsoft, and AT&T.; 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!

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