Seeking Alpha
Value
Profile| Send Message|
( followers)  

There has been a steady migration from feature phones to smartphones over the last decade and Nokia (NYSE:NOK) has been no stranger to this change. It was a leader in sales with Symbian-based smartphones before the advent of Android and iPhone.

On February 11, 2011, Nokia decided to move from Symbian to Windows Phone as its smartphone OS. It was projected that it would be a smooth transition from one platform to another with very little lost sales. Nokia would continue to support the Symbian product line until the Windows Phone product line ramped up. However, please take a look at the numbers below for Symbian smartphone sales before and after the announcement:

QuarterSymbian SalesComment
2010 Q428.6 MillionVery respectable
2011 Q418.6 MillionStill good
2012 Q42.2 MillionFalls off a cliff

How does the other part of the projection look like? Did the Nokia Windows Phones sales ramp up exponentially to compensate for the exponential decline in Symbian sales? Unfortunately, the projection of a smooth transition from Symbian to Windows Phone did not play out. However, the 2013 Q1 report, with its huge drop in revenue and sharp decline in feature phone sales and continuous cash burn in the Devices & Services group, provides a sliver of light in terms of Lumia Windows Phone sales:

QuarterLumia SalesComment
2011 Q41 MillionFirst reported Lumia numbers
2012 Q12 MillionSales double
2012 Q24 MillionSales double again
2012 Q32.9 MillionSales lost in the Win 7.5 to 8 transition
2012 Q44.4 MillionBack on track
2013 Q15.6 MillionCurrent quarter
2013 Q27.2 MillionProjected for next quarter

While the projected 2013 Q2 Lumia sales is only one fourth of the Symbian sales that Nokia achieved in 2010 Q4, the Windows Phone ecosystem appears to be gaining traction. Please note the anomaly in 2012 Q3 sales when Microsoft was moving from Windows Phone 7.5 to Windows Phone 8. The Windows Phone 7.5 smartphones were not upgradeable to Windows Phone 8.

Nokia's decision to switch OSs placed it back at the start line of the smartphone market share race allowing competitors to grow market share rapidly. While one can debate if it was the right decision, one thing is clear from Nokia's Symbian sales debacle, it is very difficult for a smartphone manufacturer to support multiple OSs. By extrapolation, it may be difficult for the various Android vendors to make in-roads into the nascent Nokia Lumia Windows Phone ecosystem.

Not only is it difficult for Nokia to support multiple OSs, even a major change within a OS can cause a decline in sales as noted above for 2012 Q3 Lumia sales. Fortunately, Windows Phone 8 is in the early stages of its roll out cycle and a major OS upgrade is several years away. This will allow Nokia to move forward steadily with its Lumia roll out without further disruption.

Nokia's stock price has gone from around $2.70 in November 2012 to a high of about $4.9 in January 2013. Currently, Nokia is trading in the $3.0 range, about 62% of the high. While the stock may have gotten ahead of itself in January, it appears to be a good value now. Being the only credible proponent of the Windows Phone ecosystem, Nokia is still a good deal below $3.5. In retrospect, Nokia was a steal below $2.0. Looking back a year from now, the same may be said about Nokia at current levels.

Source: Nokia: A Sliver Of Light