It was fascinating to see that Nokia (NOK) had a hit product with Microsoft's (MSFT) Windows Phone 8, or so it seems with the Nokia Lumia 920. Recently a DB analyst hit a warning note regarding Lumia sales being smoke and mirrors; we investigated the situation in London to see if there is any element of truth. The worldwide sold out reports, including the one from an RBC analyst, resulted in a quicker rise in Nokia shares than we anticipated. It seems the new Nokia Lumia is a hit in both Germany, parts of Europe and USA. There are many shops without any supply. The thing is, it appears Nokia may be managing supply to create an additional aura to the product. This is something that Apple (AAPL) and Nintendo (NTDOF.PK) have done before, though it is a high risk marketing strategy, sometimes pursued for technical reasons. Essentially, when a product is released before manufacturing capability has ramped up, it creates scarcity even with small demand. It is not a bad strategy, but do not expect sales and revenue records in Q4, based on a limited supply. Investors should never be fooled by sold out claims when the shipped volume is not disclosed. It is better to be realistic in expectations.
The Nokia Lumia Windows Phone 8 range is up against strong competition, and is currently not available on all networks. The apparent scarcity and news reports will be beneficial in the short term, but it is also risky; customers can turn to competitors if this situation is not resolved. It is December and still the Nokia Lumia 920 is hard to obtain on 3G networks. Let us explain.
The Lumia 920 Has Limited Providers - UK
Nokia 920 in the UK, USA, and China at least, is limited to one provider. In the UK we have a new triple brand network, which is a merger of Orange, T-Mobile and a new 4g consortium primarily owned by Deutsche Telekom (DTEGY.PK). We call it the Orange-TMobile provider. This cannot be good for Lumia sales in the UK. The competing, high end, HTC 8x phone is available on all the carriers including Three and Vodaphone. The situation is similar in other parts of Europe.
Phones4u is a leading UK based mobile retailer, nominated as the best in the high street, that only deals with the new merged consortium operator. The other major retailer, CarphoneWhareHouse, does not carry the Lumia 920. The handsets Phones4u provide are either 3G or 4G, with the 4G contracts being marketed under the EE network, and 3G as either T-Mobile or Orange. Currently all the Phones4u and T-Mobile shops we checked only have the white Lumia (4g only) version. The white Nokia Lumia 920 is either software or hardware limited to the 4g network. At this point we are unsure how this limitation has been put in place. All other colors are out of stock or were never in stock, according to the sales representatives we spoke with. The managing salesperson claimed that the Phones4u head office is promoting the UK's 4g network by limiting the choice to the white Lumia 920. The problem with 4G in the UK, is that it has much more expensive tariffs. The other colors are advertised as both 3g and 4g compatible.
Not Available or Out of Stock?
When I wanted to buy one, I had to consider changing network, and the only available choice was white. The other 3G compatible colors are showing availability from mid December, while the white version is available now in shops as we verified ourselves. The wording in online retailer responses we obtained also confirmed they never had non 4G exclusive versions in stock.
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The lack of 3G compatible Lumia means that the HTC 8x, a Nokia 920 Windows Phone 8 rival had sold out at the shops in London (Harrow, Oxford St, Ruislip) because 3G contracts are cheaper. Initially the batches of the 920 were also sold out, particularly those unlocked, but most shops had only a few dozen, according to the onsite representatives. This type of volume is great for marketing but useless for shareholders. Nokia needs multi-million unit sales not thousands on exclusive expensive 4G network. Nonetheless it is a good sign, for when the supply, distribution and or intentional restriction issues are resolved.
In short, we don't think the RBC bank analyst is wrong in that Nokia Lumia 920 has sold out in places, but the numbers of units is more important than the sold out claim. If you are in for the short term, we recommend selling out of Nokia as the sales numbers will probably not be as good as hoped this quarter. Also in the UK, the HTC 8x seems to have been selling much better due to the non availability of the 3g-4g Nokia Lumia. Note also that the 3G only HTC 8x, off contract, is priced roughly £100 cheaper.
The Nokia Lumia 920 is available SIM-free from around £445 while the HTC 8x is available for £349. On mobile tariffs, the handset is available for free on 3G tariffs from £36 per month, or from £49.99 on the new 4G price plans over £41 per month from EE. digitalspy
Short Term Caution Is Warranted
Nokia has strong competition within the Windows Phone and outside the eco-system. Thus, the turnaround will take longer than some investors believe. We like to keep things in perspective. The competition, HTC, Apple and Samsung, are not standing still. Here in the UK the Apple iPhone 5 is now available on slightly cheaper contracts than the Lumia 920, while the Samsung Galaxy SIII is much cheaper. Given the build cost of the iPhone is $207, it remains to be seen how profitable Nokia's new Lumia range will be. Do not be surprised if the end of quarter reports are not as good as the sales reports. It is advisable to be cautious about short term profits on the back of the new Lumia. Long term, though, there is no question in our minds. Nokia is brand that will still be around. Thus we remain long as a small part of our technology portfolio.