Embattled Finnish handset maker Nokia (NOK) is generating some impressive tailwinds in the Chinese market. Recent news reports suggest that the handset maker is making notable progress and pundits are saying that the Lumia may very well be Nokia's silver bullet. The Lumia 920T, which is the Chinese version, sold out within just two hours of its Shanghai debut, underscoring huge demand for the device. In addition, Nokia managed to ink a contract with China's largest wireless company, China Mobile. Considering the enormous addressable market in China, that is said to be close to 700 million, I have convictions that this whole Chinese story could pan out in favor of Nokia.
Why do I say this?
Carriers are desperate to offer something new
I believe that Chinese carriers don't want to follow in the footsteps of their U.S. counterparts. I mean, U.S. carriers, despite offering variety, are widely synonymous with Samsungs and iPhones. Chinese carriers on the other hand, understand that they are dealing with a wider consumer base. As such, these carriers need to establish a competitive edge by increasing their offerings.
The current discounts being offered on the Lumia suggest that carriers are more than enthusiastic about these brands. Chinese carriers are pushing the idea of incentives beyond the limit in what I could describe as best discount deals I have ever heard. Imagine getting the Lumia 920T for 1Yuan ($0.16) with a 2 year contract. Incidentally, this is the deal that China Mobile (CHL) has put forward. China Unicom (CHU), which is deemed to be China Mobile's closest competitor, has scrapped all prices and is offering the same device for free with a 2 or 3 year contract. In my line of thought, these discount offers stretch out beyond the mere need to attract subscribers. Carriers are well aware of the brewing demand for the Lumia and intend to cash in on the same.
Microsoft factor is a huge plus, particularly in China
Another thing that spells hope for the Lumia is the Microsoft (MSFT) factor. Looking at the U.S. market, carriers are particularly drawn in by the fact that Nokia's flagship series is using Microsoft's Windows Mobile. Most huge carriers are trying to combat the overexposure to Apple (AAPL) and Android; there is simply too much exposure to these two ecosystems. In addition, Microsoft funding is helping to lessen the cash burn. This will be very instrumental in the Chinese market where Nokia will be compelled to engage in both intensive and extensive marketing.
The huge roll out of Android devices in China also gives Nokia's devices an edge. The Windows 8 OS will not only create some competition for Google's Android but it will also be instrumental in getting leverage on Apple. It's basically killing two birds with one stone. What's even more is the fact that there is some government involvement with Microsoft. The Chinese government is using Azure cloud and Office 360 as of the moment. This will, albeit remotely, have a positive impact on Nokia's flagship series.
China's shopping period is drawing closer
While it is typical for U.S. businesses to rake in colossal amounts during the December holiday season, the same situation doesn't prevail in China. Instead, the holiday season usually comes in during the month of January as China's New Year dawns in February. As such, January is likely to be characterized by huge sales. I believe that there will be a massive ramp up of Lumia sales in China in the coming month. These current discounts, coupled with hyped marketing, greatly improve Nokia's outlook. News reports also say that Nokia is likely to start selling a tablet in 2013. Although market penetration in this segment is remarkably hard, I am confident that Nokia will make significant inroads. I believe that bigwigs like Apple and Google are approaching saturation (as far as their addressable market is concerned). The need for something innovative and different is growing bigger by the day. The patent wars between Google and Apple may end up giving competitors the much needed leeway. These wars have revealed that the bigwigs in the tech industry depend more on the legal system than they do on innovation. As such, I believe that there will be an inherent inclination toward new devices from other device makers in 2013.
In conclusion, I am convinced that the Lumia series will bolster sales growth and consequently help Nokia turn things around come next year. Expect the share price to trend upwards in the coming months. Nokia is a buy.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.