Microsoft And Nokia See A Couple Of Important Developments

Includes: MSFT, NOK
by: Paulo Santos

There are two pieces of news affecting Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK) today which might have deeper fundamental implications for both stocks, but which are a bit short of justifying an entire article devoted to each of them. For that reason, I will expose both of these news here with some commentary on their implications.

Microsoft is trying to penetrate the mobile market, both at the smartphone and tablet levels, having lost position in the past. Nokia, on the other hand, is trying to free itself from the Symbian burning platform through adoption of Microsoft's Windows 8 ecosystem. So the developments today were:

Microsoft's Surface RT apparently not selling too well

The first of these news items is that according to an interview Steve Ballmer gave to the "Le Parisien", the Surface RT sales have started out modestly. Which is to say that at this point the Surface RT has flopped.

Microsoft had priced the Surface RT as only mildly competitive when compared to the latest-generation iPad. It is now starting to be evident that such is not enough. To challenge the market leader, a price just a bit below or at the same level is not going to cut it. Additionally, the reports that Windows 8 RT takes up an entire half of the available storage in the device, turning the 32Gb Surface into a 16Gb Surface for all practical matters, couldn't have helped.

At this point, this piece of news is making it seem that the Surface is turning into another Zune. This is a dangerous development for Microsoft in its attempt to break into the mobile market -- or in this case, the tablet market.

Nokia might be doing better

Oddly enough, since this could have positive implications for Microsoft, another piece of news is a bit more encouraging. It seems that the slightly altered Nokia 920T, bound for the Chinese market, has quickly sold out.

Although we have no news about the quantities involved, it's still a positive surprise that the device seemed to have faced good demand. Nokia really needs its latest crop of Lumia devices to catch on, as the ongoing Symbian deterioration is not going to stop for sure. And obviously the Chinese market will be the most important market if Nokia is to achieve a comeback. It's also telling that the 920T handset has slightly higher specs in its Chinese version, than in the European/US version.

This is something to be followed, Nokia is far from being out of the woods, but at least now it sometimes gets a good piece of good news for a change.

Expected impact

While one can't extrapolate much impact from Nokia's news, since very little data is available regarding how many phones were offered for sale, in what regards Microsoft the impact is more strategic. A failure to penetrate the tablet market will mean that Microsoft won't have any counterweight to the impact tablets have having on PCs/notebooks/laptops. The recent drop in Windows revenue, down a third from the year before -- albeit also affected by the impending launch of Windows 8 -- highlights this.

Obviously, the tablet market is just half of the mobile market Microsoft is trying to penetrate, with Windows Phone 8 being the other half for smartphones. There the Nokia news offer some reprieve.

Still overall one should expect Microsoft's stock to show short term weakness on this development.


The most relevant piece of news here is probably the one relative to the Surface RT possibly having bombed. Since penetrating the mobile market is a very important part of Microsoft's story, this might lead to some market worries regarding how compromised that strategy might look now.

Nokia's news is a bit less certain, because of the lack of data on the quantities available. Although we also don't have the Surface quantities available, there's no reason to believe Microsoft's sales were constrained by availability, which also makes them more relevant.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.