Can Cheaper Phones Help Nokia Regain Former Glory?

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Nokia’s (NYSE: NOK) CEO, Stephen Elop, has tipped the company’s hand again, indicating that they intend to push the price point of their phones even lower in an effort to compete. To that end the company has announced two more phones in their Lumia lineup, the 720 and 520. These phones are priced at $329 and $180 respectively before carrier subsidies and should help Nokia gain a wider audience. Nokia is no stranger to inexpensive phones; in its heyday inexpensive, widely available phones were the foundation of its success. It seems Nokia is prepared to compete on all fronts with its flagship Lumia 920 showing strength on the premium end and a willingness to develop handsets for the lower end.

<img src="/media/images/user_92/nokialumia720_large.png" />

The two-pronged approach is likely spurred by experience and the success of inexpensive Android devices in the developing world. Google’s (NASDAQ: GOOG) open-source approach to Android makes development a bit more tenable and fosters a proliferation of Android devices. This also plays well in markets that lack the mobile subsidies enjoyed in the US, propelling Android to global dominance. If Nokia hopes to regain ground, it has to tackle Android’s global price advantage.

Both additions to the Lumia line are targeted for emerging markets, though Elop emphasized they were hesitant to sacrifice capabilities in favor of lower prices. Neither is equipped with LTE support, but the targeted markets themselves largely don’t either, so that’s a non-issue. Both phones adopt the brightly colored and uniquely shaped visage of the Lumia line, as well as Microsoft’s (NASDAQ: MSFT) Windows Phone OS. Clearly some sacrifices were made to reach such a low price point for the 520, which while promising, seems decidedly barebones next to the 720. The 720 has a better camera (with a flash), larger screen, and the ability to support wireless charging. Neither device is going to wow consumers used to getting the latest and greatest, but they certainly pack enough technology to satisfy low-end smartphone demand.

Even though the phones lack LTE support, T-Mobile has already committed to carrying both in the US, though they will not be launched until the next quarter. While T-Mobile is still a distant fourth place competitor in the US mobile market, it will provide additional visibility for the Lumia line.

Nokia’s continued push towards price competition has implications for the mobile market, highlighting consumer price sensitivity as the smartphone experience becomes more commoditized. Even Apple (NASDAQ: AAPL), which arguably leads the premium end of the market, has been rumored to be exploring lower cost devices. Major analysts have also been weighing in, announcing expectations that Apple will pursue lower-priced devices.

Katy Huberty of Morgan Stanley met with Apple CFO Peter Oppenheimer and walked away with several points that confirm the validity of low-cost options. The two biggest were the success of the iPad Mini and the continued demand for the iPhone 4. In Brazil and China, 50% of iPad Mini purchases were by customers new to Apple’s ecosystem. This demonstrates that lower priced devices that deliver an experience similar to their premium siblings can help extend a brand.

The continued demand for the iPhone 4 also demonstrates the strength of a lower-priced device. At this point the iPhone 4 is two generations from Apple’s latest design and discounted accordingly. It’s an easy leap to conclude that pricing is helping drive continued demand. These two anecdotes seem to confirm the viability of Nokia’s approach as well as highlighting a shift in the smartphone market.

Nokia and Windows Phone still have a long road ahead of them, but it seems they’re on the right track. Nokia seems focused on delivering across the price spectrum and is leveraging its manufacturing and design expertise to expand its footprint. Assuming the company continues to build on its success with the Lumia, Nokia appears to be on the path to recapture some of its former glory.


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