Nokia’s Prospects Brighten on Increased Windows Mobile Penetration

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Struggling handset maker Nokia (NYSE: NOK) has been on the receiving end of bears for the past year, with some of them jokingly saying that the Finnish tech bigwig is a synonym for ‘bear’. Personally, I believe that the increased negative outlook on the stock is justified. After all, we are talking about a handset maker that once boasted of a 40% global market share. Now, however, prospects are brightening in view of increased Windows Phone penetration in the U.S. and other developed markets.

A recent study by Kantar World Panel shows that Windows Phone is catching on significantly. As the market focuses on the overblown Android-iOS tussle, Microsoft’s (NASDAQ: MSFT) Windows Phone continues to penetrate the U.S. and European markets -- where its primary hardware partner, Nokia, is based.

Kantar’s study, which relates to the first three months of 2013, suggests very strong growth for Windows Phone in the U.S. In Q1 2013, Windows Phone gained 1.9% compared with the year-ago quarter. This gain translated into 5.6% of U.S. smartphone sales in the first quarter of the year. The real headline in Kantar’s study is not the significant year on year growth, but the rate at which Microsoft’s Windows Phone has gained over the first three months of the year. In January 2013, Windows Phone accounted for only 3.2% of U.S. smartphone sales. This later grew to 4.1% in February and later to 5.6% that was documented in the quarter ended March.

What does this growth signal for Nokia? And more importantly, what is the impetus behind the growth, is it a sustainable force? These are the questions that industry specialists are asking.

Strengthening Nokia’s bid for third place

Microsoft’s growth strengthens Nokia’s bid for third place. Apple and Samsung’s tussle has created a key leeway for fringe players like BlackBerry (NASDAQ: BBRY) and Nokia. So far, BlackBerry has made inroads in Canada and Europe. In fact, naysayers were compelled to go on the defensive after it turned surprise profits of $0.22 per share for Q4 2012, beating expectations which were pegged below the break-even point.

In as much as BlackBerry is making significant inroads, its market share in the U.S. does little to vindicate its hard work. If anything, Microsoft’s Windows Phone is gaining at a higher rate than BlackBerry. Kantar’s research reveals that the latter only accounted for 0.9% of U.S, sales in the quarter ended March. With the odds evidently skewed toward Microsoft’s operating system, Nokia’s chances couldn’t be any better.

The big question, as stated earlier, however remains; What is the impetus behind the growth, and is it sustainable? The force behind Microsoft’s uptrend is the fact that its operating system provides an entirely different experience when compared with iOS and Android. In addition, BlackBerry isn’t exactly new to the market. Because of the need to get something entirely new, a section of consumers are tending toward Microsoft’s Windows Phone. And as the argument for a third ecosystem continues to gain momentum, Windows Phone -- because of its relative ‘newness’ to the market -- continues to secure a more solid footing compared with BlackBerry.

One of the key pillars in the contemporary tech industry is innovation. Microsoft’s operating system does a lot to enhance this and with time, will gain the spotlight. In my opinion, this growth will hold moving forward. As long as Nokia remains Microsoft’s primary partner, its flagship Lumia model will gain immensely.

Conclusion

Verizon is set to get the Lumia 920 very soon. Being the top smartphone seller in the U.S., Verizon offers a lot of marketing support for its handsets. The Lumia will not only gain from this support, but it will also reach a wider market base.

While Nokia’s share price does little to reflect its prospects, an uptrend is very likely; especially so after understanding the impact that Microsoft’s success will have on its sales. Nokia is a good target for growth investors looking to invest for the long haul.

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Lennox Yieke 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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