Seeking Alpha
Long only, deep value, growth at reasonable price, carmakers
Profile| Send Message| ()  

In the latest aggressive attempt of Nokia (NOK) and Microsoft (MSFT) to gain significant market share in the US, Wal-Mart (WMT) stores started to offer Nokia's cheapest Lumia model (Lumia 521) for a low price of $129. The phone is being sold as "unlocked" which means that the buyers are able to use their phone with a carrier of their choice as long as the carrier company accepts the phone. Even though it will be unlocked, the phone will be sold under T-Mobile and the buyers can take the company's $30/month plan which comes with unlimited calling, texting and doesn't require a contract. The initial reports suggest that the phone was sold out within one hour after appearing on Wal-Mart's website.

Phone Specifics

The phone runs on Windows Phone 8 operating system, carries a 5 megapixel camera with auto focus, is able to record HD video at 720p and 30fps, has an internal memory of 8 GB which can be upgraded to 64 GB, carries a 1430mAh battery, comes with a Quad-band 4G UMTS/HSPA+ 42, equipped with 1GHz dual-core Qualcomm 82270 processor and is able to connect to WiFi networks. Given the specifics, the current price of the phone can be considered "dirt cheap" and apparently the consumers didn't want to pass on this device.

Sold Out Everywhere

Not only is the phone out of stock in Wal-Mart's online store, it is also out of stock in many of the local stores where it is being sold. For example, on Wal-Mart's website, I checked the inventories of 15 stores that are in and around Los Angeles and the phone appears to be out of stock in every store. Currently, Wal-Mart's website has no user reviews for the phone. I also checked 21 different stores in and around New York City and none of them had the phone available. I don't know if the "out of stock" issue is caused by high demand, low supply or a little of both reasons, but Wal-Mart should be able to sell a lot of Lumia 521 phones at the current cheap price. Earlier on, Nokia's CEO Stephen Elop talked about how Nokia needs a large variety of Windows Phones including very cheap ones in order to be able to compete with Android devices which come in many sizes and prices.

The Home Shopping Network is the first American store that ever carried Lumia 521 and the phone ran out of stock within 4 days even though the sale price was $150 as opposed to the Wal-Mart's sale price of $129. If Wal-Mart is able to sell a lot of copies of this phone, Nokia can bring more brands in the store. Keep in mind that Wal-Mart carries most phones for Verizon (VZ) which is scheduled to receive Lumia 928, Nokia's next flagship phone in the coming weeks. If this phone also becomes available in Wal-Mart, this can be huge for Nokia.

Lumia 920 Leaked?

Speaking of Lumia 928, some more information regarding the phone was leaked over the weekend. On Sunday, a number of websites published a photo of the billboard that advertises Lumia 928 in an unknown location. The billboard reads: "Nokia Lumia 928. The best low-light smart phone camera." The billboard also presents a view of the phone from 3 different angles. Some people questioned the authenticity of the picture while others studied it closely. The images of the phone in the billboard look a lot like the images of Lumia 928 that were leaked a couple weeks ago.

The phone is expected to be announced in a Nokia event on May 14. Lumia 928 is said to have a 4.5 inch screen, 32GB of internal storage, 1.5 GHz of a Snapdragon processor, 2 GB RAM and 1080p video recording. This is definitely an upgrade over the company's current flagship phone Lumia 920. It is also mentioned that Lumia 925 will hit the British markets around the same time as Lumia 928 hits the American markets but this is not confirmed by the company. After Samsung's Galaxy S4 launch and Apple's silence over the company's upcoming products, Nokia is doing the right thing by refreshing its flagship phone in the mid-year. In fact, the Verizon phone should have arrived even earlier because Nokia could easily double its market share in the US if its flagship phone wasn't exclusive to AT&T which is one of the two biggest carriers in the US. Adding Verizon to the equation effectively doubles the market size where Nokia can sell Lumia phones. In fact, adding Wal-Mart and a cheap Lumia model to the equation increases Nokia's market exposure even more. The addition of Lumia 928 and Lumia 521 in the American market can increase Lumia's current market share in the country by 100-300% within a year.

Why Wal-Mart Is Important

Many Americans with a low and medium level of income buy their items at Wal-Mart. Until now, Wal-Mart hasn't carried a Windows Phone device made by Nokia. In fact, the availability of Nokia Lumias was very limited as it was mostly available in AT&T (T) stores and some Best Buy (BBY) locations. Now at least one Lumia model will be available in a store chain that is visited by nearly 140 million Americans every week. This is a huge opportunity for Nokia that didn't gain much attention from American consumers until now.

The Take Home Lesson

Nokia continues to take the right steps towards a turnaround. The company's planning is very good and it will have to execute perfectly in order to be successful. Executing perfectly for Nokia includes taking steps such as making its phones visible, marketing them properly and making them available by dealing with any possible supply issues before they even arise. I continue to be long in Nokia as I believe in the company's turnaround story.

As Nokia trades for only 1.2 times its book value, 0.9 times its cash holdings, and 0.3 times its annual revenue, it is safe to say that the company is priced for bankruptcy at this point. Investors still seem unsure about whether Nokia will survive though the company has already showed that it is here to stay. After it spent billions on turnaround measures, the company's cash burn came to a halt. Lumia 521 or Lumia 928 may not be able to save Nokia by themselves, but these phones will contribute greatly to this company's comeback. Lumia 521 will target the low-end market while Lumia 928 targets the high-end market. If Nokia can double its American market share with help from Verizon and Wal-Mart, it will be highly profitable in the country. Even if Nokia barely sees a breakeven and no significant profits for the next couple years, it is still fine because the company is priced for bankruptcy and anything short of bankruptcy is going to be bullish for Nokia.

Don't get me wrong, I am not making big predictions like "Nokia will be $30 next year" or anything. I think Nokia will trade in the range between $3 and $5 for the next 12-18 months unless we see a huge surprise. Still, this doesn't change the fact that the company is in the right path for a comeback.

Source: Nokia's Turnaround Underway As Lumia 521 Sells Out In Wal-Mart