More Reasons to Buy This Smartphone Company

Mohsin 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) was once the largest mobile phone manufacturer in the world but is now treading on the fringes of bankruptcy and breakup. The technology darling of yesterday has junk credit rating, and its stock has also been trading at near penny valuations. To turn around its fortunes Nokia had to seek help from the largest software company in the world i.e. Microsoft (NASDAQ: MSFT). Considering the fact that Nokia hardware was always top of the line and the only problem for the technology giant was the software side, it was a natural fit.

Alliance

This partnership resulted in a total revamp of Microsoft Windows Phone software and the Nokia smartphone line. The initial efforts with Windows Phone 7 were not that successful in terms of software traction but the hardware of Lumia 900 saw universal acclaim. Microsoft soon updated its smartphone OS with the new Windows Phone 8, released late last year. Nokia also updated its hardware and launched the Lumia 920, arguably one of the best high end smartphones available in the market.

Lumia Response

The sales of the new WP8 powered Lumia have not been as strong as expected by the industry. The market was expecting Nokia to sell approximately 7.8 million smartphones and 86 total million devices in the last quarter of 2012. Nokia ended the quarter with only 6.4 million smartphones shipments but met the street expectations on total devices sold. The Finnish giant was particularly strong in sales of its new Asha series which has received a lot of traction in Asia. The smartphone sales were hampered by limited availability of Lumia and supply constraints, according to the company.

Market Potential

These results were another indication that Nokia should not only focus on the high end market but also capitalize on its popularity with value devices in Asian markets such as China, India and Southeast Asia. According to estimates by IHS, the international low-end smartphone shipments will cross 559 million units by 2016; they are currently at approximately 206 million. These estimates show that the value smartphone industry has the potential to grow by a staggering 51%; comparatively the 26% growth in high end devices seems almost sluggish. These growth rates show the importance of the value smartphone segment and feature phone segment for the turnaround efforts of Nokia.

Nokia Launches

The company has announced that it plans to launch cheaper handsets to compete with the growing Chinese threat. Nokia will unveil these devices at the Mobile World Congress industry convention that will be held in Barcelona next week. The company will target both feature phone competition from Huawei and ZTE with cut-price basic phones and also launch more value smartphones from its Windows powered Lumia series. I believe this is a great move by the company, and these value smartphones will sell like hot cakes in markets like India, China, Brazil and various Southeast Asian countries. The company has still not announced pricing for these new models, but I believe a positive launch will have a positive impact on Nokia’s stock price, even if a limited one.

Competition

Nokia was not the only manufacturer facing troubled times due to rise of Android and iOS. BlackBerry (NASDAQ: BBRY) has seen better times in the smartphone industry. The company saw miserable consumer response to its touch based devices, with consumers preferring the Android phones over devices such as BB torch etc. The company was forced to totally revamp its operating system and launched the new and exciting BlackBerry 10.

The new OS has seen much excitement from investors, with the Z10 model getting universal praise. BlackBerry is also competing with Nokia to break away Android and iOS loyalist. BlackBerry services were always a big selling point for BB handsets but the rise of applications like Whatsapp and Viber have significantly reduced this competitive advantage. Nokia already has a very loyal consumer base in the value category and is looking to tap this potential with a low priced device. I believe it's high time BlackBerry also tries to tap this highly lucrative segment and starts working on value BB devices.


SmartEquity has no position in any stocks mentioned. The Motley Fool owns shares of 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!

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