Nokia Finds The Niche Between Cool And Commodity

| About: Nokia Corporation (NOK)

There have been a lot of column inches dedicated both pro and con about the Nokia NOK Lumia 920. For a brand as battered and beaten as Nokia's to gain any kind of attention, good or bad, is a positive. Nothing is worse than introducing your big comeback product and have people glance at it and keep going on with their day. Say what you will about the 920 - and plenty have - it is nothing if not striking and capable. But, the 920 is not the end of Nokia's strategy, just the face of it here in the U.S. For the rest of the world, however, in places where the 3G rollout is a big deal - think Thailand, Indonesia, India and China - Nokia is in a different place because the market is so completely different than it is here in the States.

The False Binary Star

Here in the U.S. it is all about Apple AAPL and its commanding market share position - one that looks unassailable for the time being. I'm not Apple's biggest fan - especially recently - but I see its value proposition and love its execution. Apple's tools are just not for me. Android has provided a perfect geek-inspired antipode, fulfilling the role of the anti-Apple. Now, I could care less about all of that. In my two previous tech articles I specifically tried to avoid the whole false dichotomy of Intel INTC vs. AMD AMD, but a quick perusal of the comment threads shows the futility of trying to stay even reasonably neutral and point out that a small market share gain for AMD would be great for them while Intel's bottom line would barely even notice a change.

So, in the smartphone world the iOS vs. Android meme is just as - if not more - toxic and just as incapable of producing rational analysis. Forget trying to add a third player into the discussion, it is all about the logical fallacy of 'If not A then B.' If you like Android you hate iOS and vice versa. I like Microsoft's MSFT Windows Phone, what does that make me?

A loser, I guess. And, by extension, so is Nokia. But, the myopic perceptions of the tech-head 'laptopistas' are not reality.

It's a Vast, Small World

The tech world may be made of binary bits of data but markets are more nuanced than that. They are also global. Windows Phone is not for everyone and thankfully never will be. Nokia, however committed they may be to the platform, in late 2011 made a brilliant decision for the company. Use its spare capacity to build cheap, powerful proto-smartphones for those markets that had stuck with Nokia's feature phones. Across Asia, a significant portion of the market carries both a smartphone and dual-SIM Nokia candy-bar burner phone to make/receive important calls on because, as a phone, Nokia is virtually without peer. And, yes, people still talk on the phone. So, building a new line of Asha phones that combined a touch interface, Nokia's great reception, internet integration - including Facebook FB and social media support -- and selling them for $59-$119 in India and other places was literally genius.

The story surrounding Nokia in 2012 was how it was going to run out of cash because Windows Phone would be the death of the company - short version. All the time Asha flew under the radar providing solid cash flow and retaining the company's brand image in critical future markets of more than 1 billion potential customers.

When I heard Apple CEO Tim Cook whine that entering India was too hard - translation: Indians are too cheap to pony up $700 for last year's phone - I knew Nokia was in no danger of going out of business. Couple that with Microsoft's myriad of cloud initiatives and moves in Asian education, specifically in Singapore, India and Thailand, and both companies' long-term commitment to building local customer loyalty is laying a foundation for more than a 2% market share in the biggest untapped markets on the planet.

In China, Apple is just as inept, frankly. A year ago the iPhone 4S launch saw Apple commanding enormous margins for its products and speculation then was that it was only a matter of time before Apple cuts a deal with China Mobile CHL and the iPhones for TD-CDMA would be born.

We're still waiting. Meanwhile Nokia cannot keep up with the demand for the Lumia 920T - a variant for China Mobile that sports a quad-core Qualcomm QCOM Snapdragon S-4 Pro that was a necessity to set it apart in China.

Moreover, home-grown Chinese companies like Lenovo, Hauwei, Xiaomi and ZTE are gobbling up market share from Apple and building homegrown brand loyalty. Apple's share of the Chinese smartphone market has dropped from 19+% to under 10% in less than a year. Make no mistake, Nokia has its hands full in China but at least this is a company that understands that the phone now is not the end of the sale, but the beginning. Again, Apple is committed, like Intel, to maintaining its unsustainable margins in the face of competition that has now surpassed it in terms of technology, if not in overall user experience.

Add to the 920 strong entry-level variations on the very successful Lumia 610 - the 510 and the 620 - and Nokia's international strategy is not only clear but looks very strong.

The Not-so-Smartphone

In the past year, we have seen the smartphone go from something that was quite the monetary commitment, especially if one is on a major-carrier data plan in the U.S, to something literally on the verge of being commodified. Pre-paid registrations are outpacing carrier contract sign-ups in the U.S. Effectively unlimited data plans (4Gb is a lot of data for the average user) for $50 and below are now the norm on MVNO's around the country, and budget phones are now fully functional - if slow and cheaply made -- devices starting at $79. But they are the future and it's a future that looks a lot like Nokia's past.

Nokia realized this with the Windows Phone 8 launched and priced the 920 and the 820 perfectly. My biggest gripe is the complete lack of a low-end phone like the 620 in the U.S. market. That's where the growth is and that's where the phones should be positioned. I suspect Microsoft meddled in this decision trying to up-sell the brand to compete with Apple. It stinks of Steve Ballmer and that's never a good thing.

A $169 no-contract phone would be a no-brainer. It's a strategy working very well in Europe where places like Italy and Finland see Windows Phone with double-digit market share according to the latest numbers from Kantar and 5.4% for Europe overall.

The latest sales figures from Gartner show Windows Phone with a 3.0% global market share with more than 6.1 million phones sold in Q4. That's a beginning not the end, however, as we still do not have a full quarter's worth of worldwide sales. The strategy is in its infancy and I'm not willing to claim anything more than Nokia is in a stronger position than it was this past summer.

Cool Hand Lumia

When I saw the 920 I saw the first smartphone that I ever coveted. Sometimes you can look at something and say, "Yes. That is cool." And the 920 is cool. Cool can, however, only take you so far, and the supply problems that Nokia has had are both a blessing and a curse. It's not for everyone, but it does not have to be. For now, I like Nokia as a mix of cool branding (taking the seriousness out of smartphones and making them interesting and unique) and practical market building in places its competition fears to tread.

I like to look at companies through the prism of two of the great philosophers of the 20th century. The first is Austrian economist Murray Rothbard, who said that the key to success in an open market is being different; offering a form of value for potential customers that no one else has. The other is the great baseball manager Casey Stengel who said that the key to winning at baseball was to 'Hit 'em where they ain't.'

I think that sums up a lot of where Nokia is right now, despite the chatter.

P.S. I am one of the few people in the U.S. with a Win 7.5 phone. I like it.

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.

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