Is Microsoft a Buy on Nokia’s Recent Strength?
Douglas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Microsoft (NASDAQ: MSFT) is in the midst of an aggressive attempt to regenerate its once dominant position in the technology sector and return to the role of innovator. Over the past several weeks, the company has released – both directly and in partnership with hardware manufacturers – a sweeping range of new products including Windows 8, the Surface tablet, a new series of notebooks computers and the new line of Windows smartphones, the last with the help of partner Nokia (NYSE: NOK).
The Lumia 920, the flagship Windows smartphone, has seen demand that is outpacing expectations and led Nokia’s stock to cap off last week’s 21% rise with a 7.5% pop during Friday’s trading session. While the full extent of demand for the device remains difficult to judge, the warm reception should be seen as a big positive for Microsoft. A serious smartphone entrant has been considered one of the elements holding the company back, and while we have not reached blockbuster status yet, reasonable market penetration is a solid first step.
Nokia’s Initial Sales
While the specifics remain somewhat elusive, various reports are indicating that the device is sold out or in limited supply. The Next Web recently posted a story that explains that the device is “all but sold out on both Amazon, and AT&T’s website, indicating potentially high demand.” AT&T is the exclusive purveyor of the Lumia 920 in the U.S. and has only white models available, while Amazon is running at a couple weeks back order.
In addition to the above, somewhat anecdotal evidence of strong demand, Nokia was recently upgraded from sell to buy by an analyst at Danske Bank Markets. Mr. Rauvola raised his 2013 sales estimates to 36 million units from 23 million, and stated: “It’s just the beginning of the sales ramp. This hasn’t even started in all countries yet. We don’t have complete visibility.” By all indications, the Lumia 920 is performing as well as Microsoft could have hoped.
Using the Correct Yardstick
It is critical to place the performance of the Nokia Windows phones, as well as Microsoft’s other product offerings, into the proper context if we are to make a meaningful assessment of where the company is positioned. While sales of the Lumia 920 and other smartphones running on the Microsoft platform have surpassed expectations, they still are in a different stratosphere from any release of an Apple (NASDAQ: AAPL) iPhone. At a 2013 sales expectation for the device of 36 million units, the Lumia will aggressively hit figures in a year that Apple hits in weeks or months.
It is easy, based on a pure number of units comparison, to scoff and decide that Microsoft is not as well positioned as some, myself included, would have you believe. What I would encourage you to remember, however, is that Microsoft neither is, nor is trying to be in the same game as Apple. Where Apple has celebrity product launches and drives sales with its consumer electronics, Microsoft is primarily a software company. While it continues to branch out into other arenas, potential investors should view as a significant positive the fact that it is not trying to beat Apple at its own game.
Microsoft is revamping its entire product line in a steady attempt to become relevant again and change perception. By building a comprehensive foundation that covers computing, smartphones, tablets, game consoles, online music, an expanding app ecosystem, all an augmentation of the company’s significant enterprise business, Microsoft is playing the game it is good at and one at which it can win. I believe the strength in Nokia is a significant positive for Microsoft and should offer another reason to own the stock.
Mr. Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, 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!