Tablets: Great Catalyst For Nokia's Stock, But Success Lies On The Consumer End

| About: Nokia Corporation (NOK)

It's not something I expected so soon but it's not something that surprised me either. In an interview with the Australian Financial Review, the CEO of Nokia (NYSE:NOK) Stephen Elop more or less confirmed that Nokia was working to make a tablet that will run on Windows 8.

We haven't announced tablets at this point, but it is something we are clearly looking at very closely. We are studying very closely the market right now as Microsoft has introduced the Surface tablet, so we are trying to learn from that and understand what the right way to participate would be and at what point in time.

While Nokia could make an Android tablet if it so chooses, I think it is wise to continue with Microsoft's Windows 8 platform. Remember there will probably be support from Microsoft as is in the case of the Lumia phones. Microsoft pays good money to get Lumia phones in peoples hands (please read my previous article on the subject here), I imagine they will pay for tablets also.

So If Nokia were to enter the tablet space, the question is, what segment of the tablet market should Nokia choose to compete in? I say this because on the one hand the Windows tablet space is quite young, and on the other hand it is confused. Let me explain.

I have a question for everybody: What do you use a tablet for?

I will tell you what I think a tablet is for. It's for browsing on the couch in the living-room while watching the evening news, it's for my 8 year old kid playing games and it is definitely a tool for my wife to download a recipe while in the kitchen to make something nice to eat. In other words it's mainly a consumer item. Nielsen confirms this in a recent report about tablet use:

Thirty-six percent of people age 35-54 years old and 44 percent of people 55-64 years old use their tablets while watching TV in order to dive deeper into programming. Nearly a third of tablet users age 25-64 check sports scores while watching games too. In fact, a majority of owners use apps while watching TV across the board.

By contrast, today's Windows 8 tablet offerings are trying to compete with PCs. They are basically miniature PCs. Almost all have an extended keyboard and most are made for people on the road. Sorry but if I want to buy something that will be used for business on the road, there are plenty of laptops and ultra-books to choose from. Why would I want to buy a tablet? Also, a tablet can in no way replace a full fledged PC even if it has an extended keyboard. Yes tablets are also a tool for presentations, but that can be done via other means, you really don't need a tablet for that.

Why would I want to pay $900 (at least) for a Microsoft Surface pro? Does Microsoft (NASDAQ:MSFT) think people will use this device on the road or in business, or does it think it will be used by the average home user? Personally I think by none and I think it will flop. What was Hewlett-Packard (NYSE:HPQ) thinking of when they made the HP Envy 2? Why would I want to pay such a high price (starting $850) for a tablet? At least DELL (NASDAQ:DELL) with the XPS 10 got the price right, but it has made a device that will not be used by real everyday ordinary people. All these companies have so far failed in the tablet wars for the above reason.

The only two companies that make tablets for real people are Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) Android third party manufactures. Both ecosystems make tablets that are made to be used as tablets. Both companies make tablets for the living-room, for the kitchen and for toddlers to play games. Apple on the one hand makes high-end devices and the Android space has less pricey offerings like the Nexus 10.

So the question is, if Nokia were to make a tablet, what segment of the market should it go against? Personally I think Nokia has to go after Google's Nexus 10 and Apple's iPad. Nokia has to make a device that will appeal to ordinary people on a mass scale at a good price.

And given that the Nokia ecosystem has about 125,000 apps tailor made for Lumia phones (as per Stephen Elop in the interview above), I think it's only natural that Nokia will want to enter the tablet market. Also, given the international presence of Nokia and the fact that it is one of the most recognized brands in the world, I am almost certain they will succeed if they decide to undertake this new endeavor.

Just to give you an example of how huge the international footprint of Nokia is, yesterday StatCounter Global reported that Apple and Samsung displaced Nokia worldwide for first time in terms of internet usage. In other words, all this time Nokia was still in first place as far as internet usage is concerned, even though they have had a massive decline in smart-phone market share.

So If Nokia makes a tablet for real people and not some kind of a "transformer" type PC, then I think Nokia will succeed. If on the other hand Nokia tries to compete with the likes of other manufactures such as DELL and Hewlett-Packard, that have made all sort of fancy Windows 8 mini PCs for the road, then I think Nokia's tablet strategy will fail. So I will be following very close to see what market segment Nokia will go after, because that will make all the difference between success or failure (as far as I'm concerned).

Why are tablets a catalysts for Nokia's stock?

Well as far as Nokia's stock is concerned, the market will be looking forward to discount Nokia's new endeavor. A tablet strategy will keep the stock in the news and Nokia on investors minds. Remember, many times the money is made discounting an event and not so much after the event. I don't want to remind you what happened to Apple's stock after the iPhone5 launch. So as far Nokia's the stock is concerned, I think this is a good short-term price action catalyst, even if the tablet might take several quarters to launch.

I have been bullish on Nokia's stock for a while now (please read my Nokia logic here), and I will probably become even more bullish when they come out with a tablet, but in the mean time, a tablet strategy is something to look forward too and adds to short term bullishness.

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.