The Lumia Is Nokia’s Silver Bullet

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Over the last two years, writeups and research reports on Nokia (NYSE: NOK) have been parsed more intensively than some of our politicians' speeches. Investors have not only been curious to unearth the drivers behind Nokia’s fall, but also looking to establish whether the proverbial light at the end of the tunnel is imminent. The debut of the Lumia-series smartphones was deemed Nokia's first huge step to regain its dominant position. Although the first Lumia failed to penetrate the market as expected, it did manage to set the stage for bigger prospects.

Going by a recent research conducted by UK research firm YouGov, the Lumia will be a key driving force in pushing Nokia through its recovery. Backed by statistics, YouGov’s report advances a notably bullish case for Nokia. To give you a deeper insight, I've excerpted some of the key takeaways from the report.

According to YouGov, 42% of Nokia’s customers will use a Nokia as their next phone. This percentage corresponds to December 2012, and has in fact increased from 30% in September. YouGov also noted that the gain in Lumia’s Windows Phone was mirrored by a big decline in Symbian, which dipped from 99% to 60%.

Sales figures for the Lumia 920 and Lumia 820 show that the phones have performed better than their predecessors, netting sales of 4.4 million units in the past quarter; this signals a sequential increase of 43%.

Going by these numbers and the argument in the YouGov report, I am inclined to believe that Lumia will be a key contributory factor in Nokia’s recovery. More importantly, the notable gains by the Lumia suggest that Nokia is doubling its efforts to change the negative consumer perception toward its products.

The unseen hand in the low end market

With pundits placing more of their attention on the Lumia’s performance, the market at large has failed to notice Nokia’s secret weapon: its footing in the low-end smartphone market. In my opinion, this weapon is the unseen hand that continues to push Nokia through its widely documented recovery.

One of Nokia’s biggest initiatives in the low-end market has been the Asha series, which managed to net sales of 9.3 million units in the past quarter, marking a sequential increase of 52%.

In continued efforts to expand the Asha line, Nokia recently unveiled a new model in the Asha series. This new model, called the Asha 310, is expected to retail for around $102 and will launch this quarter. The fact that the Asha 310 is expected to be predominant in emerging markets like Asia, Brazil, Africa, and the Middle East, suggests that it will translate into handsome sales figures. From where I stand, I am convinced that the Asha smartphones will be key revenue earners, even as Nokia tries to regain footing in the high end market with the Lumia series.

The current big debate as to whether Apple (NASDAQ: AAPL) will consider establishing a position in the low-end smartphone market is gaining momentum. If at all Apple comes into this market, pundits argue that segment leaders like Nokia will have to watch by the sidelines. Both Bank of America Merrill Lynch and Morgan Stanley have hashed out a low-cost iPhone case for Apple.

The two investment banks believe that Apple should make a less expensive "iPhone mini." Morgan Stanley contends that if this smartphone is launched in China, it will triple Apple’s addressable market in the region. Bank of America Merrill Lynch on the other hand believes that Apple needs to operate close to the $300 selling price in emerging markets; necessitating the need for an iPhone mini. BAML reasons that the $300 selling price accounts for close to 70% of devices in growing markets.

With regard to a new Apple product, renowned Piper Jaffray analyst Gene Munster is disposed to believe that Apple will launch a new product in March or April. Munster’s argument is based on the historical time gaps between Apple’s product launches.

The argument for an iPhone mini sounds convincing. Indeed, the low end market has the attractive promise of growth. The chart below couldn’t demonstrate this any better.

 

<img src="/media/images/user_15315/shipments-for-low-end-smartphones_large.jpg" />

Going by this trend, low-end smartphones will definitely be top revenue earners in the near future. This alone presents reasonable incentive.

Nokia's Asha series will not be affected by a possible iPhone mini

This much debated iPhone mini will not in any way affect the formidable Nokia Asha series. I am convinced that Apple will not venture into this market. Despite the alluring incentives, Apple cannot risk losing the cool brand perception that it worked so hard to build. Once consumers in mature markets witness iPhones being dished out at what they would consider throwaway prices, they may abandon the product and opt for something else like Samsung.

BlackBerry (NASDAQ: BBRY), another recovering titan, will also not pose a threat to Nokia in the low-end market. Most of its focus will be primarily driven toward the high end market. Wells Fargo Securities analysts recently upgraded the company formerly known as Research In Motion, contending that the BB10’s good start had offset negative margins from the BB7. Nonetheless, BB10 will have to battle out with the Lumia for the enterprise market. Already, the Lumia has recorded a minor win in enterprise. Foxtons, a UK real estate agency, ditched Symbian for the Lumia’s Windows Phone, noting that the Windows Phone provided better office integration.

If Nokia continues to trend upward in the low end market, while at the same time enhances its Lumia efforts, I foresee an imminent upside for the stock.


Yieke has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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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