Nokia's white knight eludes them
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nokia (NYSE: NOK) beat Apple (NASDAQ: AAPL) to the punch this month by announcing the second generation of their Lumia smartphones about a week before Apple held their highly anticipated iPhone 5 announcement. The Lumia 920, their new flagship device features a slightly larger 4.5 inch display. The 920 has a dual core 1.5Ghz Qualcomm S4 processor, with Windows Phone 8 Windows phones can now have dual core processors. This all runs off of a 2,000 mAh battery that has wireless charging built into it. Nokia also claims that they have the “fastest LCD display ever shipped on a smartphone”. Along with a floating lens technology that provides better picture stabilization from the 8 mega pixel camera than other smartphones. The floating lens technology is actually spring mounted making the camera smoother. The camera announcement was somewhat marred by a demonstration video that purported to show how smooth the 920’s camera was but unfortunately wasn’t actually shot using the 920’s camera. The 920 is also shipping in a number of “vibrant colors” including red and yellow. Nokia also announced a lower end Lumia 820 phone the successor to their Lumia 800.
The 920 is a huge improvement over the 900, it has hardware on-par with high end Android smartphones and Windows Phone 8 is on-par with the other leading mobile operating systems. There are smaller positives as well like the wireless charging, screen, floating lense camera technology and even the colors. However the main question is will this be enough to save Nokia? The market didn’t think so, the day after the announcement Nokia’s stock dropped 15% (though it has bounced back somewhat). Part of the reason for this may have been that Nokia didn’t actually announce when the new phones will go on sale. The current rumor is that the phones will go on sale in select markets in November. They also did not announce how much the 920 or 820 will cost, at this point coming in at a price below the competition is one of the few plays Nokia has left. However this alone does not explain the negative reaction from the market.
What could help better explain the drop is the fact that Nokia was not actually the first company to announce a Windows Phone 8 smartphone. About a week before Nokia’s announcement, Samsung announced their ATIV S smartphone. Samsung’s Windows Phone 8 smartphone looks very nice and after Samsung’s legal loss to Apple, which they are appealing, they may well put more effort into Android alternatives, at Nokia’s expense. Stephen Elop Nokia’s CEO and a former Microsoft (NASDAQ: MSFT) executive called the Lumia 900, the 920’s predecessors success “mixed.” The 920 is going to have to do much better than “mixed” if it is to save Nokia, which has lost money over the last year while paying out over a billion dollars in dividends.
The smartphone markets demographics don’t play in Nokia’s favor either. According to a report from Comscore, Apple’s iOS and Google’s (NASDAQ: GOOG) Android make up 85% of the US smartphone market. This leaves BlackBerry and Windows Phone fighting over the remaining 15%. With new Android smartphones from Samsung, Motorola and with Android 4.1 Jelly Bean rolling out it is unlikely that Android’s market share will drop, despite Samsung’s legal setback. Additionally Apple is set to release the iPhone 5 on September 12th which will spike iPhone sales this holiday season, older iPhones will be discounted after the iPhone 5 launches making them more appealing to budget conscious shoppers. Even if Android does stumble because of the legal hot water they have been in for years, or the iPhone 5 is a flop, there is not guarantee that Nokia is the company that would pick up the slack. Samsung has a Windows Phone as will several other Microsoft partners and there is even a possibility that the upcoming Blackberry 10 operating system slated to be released early next year will catch on.
Not only has the smartphone market heated up since Nokia released the first generation of Lumia devices but the Windows Phone ecosystem has as well. Microsoft has added additional hardware partners for Windows Phone 8 as well as announcing the Surface tablets. Although the Surface tablets are not smartphones and do not run Windows Phone 8 they are mobile computing devices. Virtually all other smartphone makers have a set of tablets to compliment the phones, even BlackBerry and Amazon do. Microsoft has taken it upon themselves to make a set of Windows tablets not only irking Microsoft’s PC hardware partners but it further hurting Nokia. Any potential that Nokia had for launching their own Windows based tablet is now essentially dead. Between Apple’s iPad, cheaper Android alternatives and Windows 8 based tablets lead by Microsoft’s own Surface tablets there isn’t room for a Nokia tablet, at least not a successful one. Further, the event Nokia just held would have been the place to announce a Windows 8 based tablet. Nokia would have been one of the first to do so and it would have given Nokia more opportunities for a successful product for this holiday season.
There are a few options that could play out with regard to Nokia at this point. They could be purchased outright, by Microsoft say for their patents their hardware expertise and their knowledge of the smartphone market. Apple makes their own hardware, Research in Motion makes their Blackberry’s and Google recently purchased Motorola Mobility for their patents and hardware expertise. So Microsoft buying Nokia at a price potentially lower than what they paid for Skype does not seem out of the picture. At the same time Microsoft does not need to buy Nokia, they have the intellectual property to defend Windows Phone, and they have been hugely successful in the PC world without making their own computers. The only places Microsoft makes their own hardware is with the Xbox and the recently announced Surface tablets.
Nokia’s future is likely to be highly volatile and mostly negative, it will be a month or two before the new phones hit the market and a few more months before we get a comprehensive picture of their initial success. By that time Apple will have released the iPhone 5, Android smartphones will continue to sell like hotcakes and even Research In Motions Blackberry 10 debut will be right around the corner.
ded004 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Nokia. 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.If you have questions about this post or the Fool’s blog network, click here for information.