Nokia (NOK) has had a pretty tough time in the last five years as any interested observer of the stock knows. Operating in a highly competitive market, it has three key pillars -- two of which, while perhaps underappreciated by stock analysts, certainly help form a stable platform for Nokia.
Its Location and Commerce Division primarily competes against Google (GOOG) Maps as well as focused navigation providers such as TomTom. Dominating the built-in car navigation market, it certainly holds its own and with increasing enterprise support (such as Oracle (ORCL) using its technology) is a strong competitor to Google and will be so for the foreseeable future.
Nokia-Siemens, its telecom infrastructure unit, seemed to be down and out with ZTE and Huawei especially stealing much of its market share. It lost its dominant position and appeared to be really struggling. However, with Nokia's continued, almost obsessive focus on R&D finally paying dividends with the shift to 4G, it appears to have gotten back on its feet delivering a small profit in the last quarter. In all likelihood, that will continue rising and add significant value to Nokia's market capitalization.
With these two solid pillars in Nokia's support, the real reason for the knife-edge ups and downs we have seen in Nokia's share price are due to its mobile phone division. This division has for the last two decades sold a very broad range of devices at every conceivable price point, from devices retailing at under $20 to approximately $500. To understand the implications of this, I will use India as an example due to it being a key Nokia market and illustrating the price point principle very vividly. At its peak seven or eight years ago, it would not have been surprising to see in India an auto rickshaw driver proudly using his budget Nokia 1112 conveying a passenger with 500 times his gross income carrying a Steel Nokia 8800. To understand how such a thing could occur, one must consider the development of the mobile phone. Like many technologies, it filtered down from the affluent to those of humble means. This had a cumulative halo effect. Essentially, what this means is that because the passenger had the top-of-the-line Nokia, the auto driver would be more likely to purchase his own Nokia in his own budget range.
This halo effect is a well-known principle of proven efficacy. When it works, it creates a virtuous cycle. However, when it broke down, it was deeply damaging to Nokia. Nokia's halo effect was severely impacted by Research In Motion's (RIMM) BlackBerry, which is still a leading contender in the Global South. But it was truly broken by Apple's (AAPL) iPhone series from 2007 onward. Apple beautifully focused in on an area where it felt it could generate high margins and has, with each iteration of its device, succeeded in capturing a significant chunk of the premium market. While phones like the N95 held their own for a while due to the cachet Nokia had built up, eventually the reality caught up with Nokia and its image was near fatally damaged. Premium phone sales collapsed, and with them its stock price crashed too. With the premium phones no longer considered contenders, this enabled the perennial challenger to Nokia -- Samsung (SSNLF.PK) -- to challenge it, especially acutely in mid- to budget-range phones.
The Samsung of today looks remarkably similar to the Nokia of seven or eight years ago, with world-renowned, premium phone-delivering cachet (the Galaxy S3 and now the Note II) backed up with budget phones stretching all the way down to the sub-$20 price point. However, after the half a decade of travails Nokia has faced, it finally has a contender with which to step back into the market, the Nokia Lumia 920. This phone, with its high ASP, will be a significant revenue generator for Nokia itself. But in the context of this piece, I truly believe it will help drive sales throughout the Nokia range of devices. In the hands of people like Priyanka Chopra in the East or Jessica Alba in the West, this phone finally gives Nokia back an element of "coolness" and a brand image so vital in getting phones sold -- and ultimately delivering value to shareholders.
I have closely monitored the uptake of this phone and it appears to be selling very well, though we will probably have to wait until the official Q4 results to have a true indication of sales figures. What I find especially interesting, however, is the voracity of its online support. No matter the subject heading, on every blog, on every forum, and on newspaper websites, supporters of this product wax lyrical about its beauty. While some have cautiously pointed out that this occurred with previous Nokia phone launches as well, the sheer quantity of these posts is especially interesting. And certainly on Google trends it appears to be a great deal higher than previously.
I would suggest that this is perhaps because on a certain level, with perhaps over half of humanity having owned a Nokia or had someone in their family own it, there was a great deal of latent support for Nokia. The Lumia range has finally reactivated this support, and reactivated Nokia's halo.
Therefore, for the next year I do not just predict a blockbuster amount of sales for the Nokia Lumia range of devices, I would also expect an uptick throughout its device range (especially six months down the line when the trickle-down effect truly starts to take hold).
My recommendation is to hold on to your NOK and enjoy the ride.
Disclosure: I am long NOK.