Nokia (NOK) continues to tread water as it tries to find an identity lost because of its bigger rivals, Apple (AAPL) and Android. I am observing the company struggling with different things from tax problems in India to a "less than spectacular" introduction of its flagship phone that was supposed to help it rise up from the ashes. Even though the company is still crawling its way out of the mud, I do believe there is light at the end of the tunnel! There is one area that this company is growing-- the Mobile phone upgrade market. Let's take a look at its present challenges but also look at the area where it may continue to grow and surprise people at its market share a few years from now.
Tax Problems in India
The country of India has several tax disputes involving foreign companies taking place right now, and one of them includes Nokia. Recently Indian authorities dismissed the company's appeal against an income tax bill of $20.8 billion that the country demanded the company pay. The taxes go back five years from 2006. Nokia believes that the bilateral tax treaty between India and Finland was followed to the letter and they don't believe that they owe the country anything.
India is a key market for Nokia because it is seen as a market that straddles the fence between high-end feature phones and smartphones. The latter has been a struggle for the company because rivals Apple and Samsung (SSNLF.PK) have captured its market share.
What has motivated India to suddenly go after these companies? The country has a budget deficit and this is a highly motivating factor to seriously start pursuing tax claims it has against foreign companies. Nokia does not stand alone, other global companies that the nation are chasing is Royal Dutch Shell (RDS.S) and Vodaphone Plc (VOD) just to name two.
The Flagship… Is Floundering
I'm not sure if there was too much hype, but it appears that investors were less than thrilled at the introduction to Nokia's new smartphone intended to bring the company back to glory. We're talking about the Lumia 925, but there was nothing different or groundbreaking between the hardware or software design. The phone also had limited differences between its 920 or 928 models. Investors were anticipating something that stood out from the crowd but they didn't get it.
Did Nokia under deliver?
"Not groundbreaking!" This is a problem as the company continues to try to reverse its journey into losing market share, even though Lumia sales are doing well. Both Nokia and its partner Microsoft (MSFT) are pushing hard into the mobile software arena trying to take back business from Apple and Google's (GOOG) Android software.
It's hard to try to figure this out. Sales have been great for the Lumia and continue to rise. In the fourth quarter of 2012 sales toppped 4.4 million; the first three months of this year sales rose to 5.6 million and the company is projecting 7.1 million this quarter with the new model rollout. Things don't sound bad to me.
The company is attempting to separate itself from its rivals through location-based technology and it's an advanced camera system. One application allows users snap 10 photos at once and then edit them as well as provide the best shots in low or bright light. The new Lumia 925 does offer imaging software that captures sharper pictures and video with the best low light images on the market, but for some reason consumers were looking for something more than what I would describe as an "advanced Lumia 920."
One of the problems that an analyst at Danske Bank, Ilkka Rauvola , pointed out is price. Even though the company is quite successful at standing out with camera and video technology, it has to work on driving down the price so that more people around the world can afford it.
But the company may have a plan after all!
What's the Purpose of the Lumia 928?
This came out right before the 925 was introduced and came in at an attractive price for about $100 through Verizon only. It was considered the best phone the company had to offer and it wanted to get it into the hands of as many consumers as possible.
The phone was no slouch, with an 8.7 megapixel camera, the best in its competitive class along with 1 GB of RAM and better battery life. But the company has to wait for Microsoft to update Windows 8 before it can feel on the same level as an Apple or android phone. Opening up on Verizon only was a surprise to me considering that I watch other carriers open up major products on all carriers. Maybe the purpose was to give consumers a taste of what they can get an a very inexpensive price.
If this is the case, then it might have been a very smart move by Nokia and Microsoft working together. Smartphones finally took over the number one sales spot from feature phones last quarter. Look at these statistics on Windows OS phone sales last quarter:
- The majority were Nokia devices
- 42% were feature phone users upgrading to smartphones
- 23% came from an Android smartphone
- For Verizon, Windows' share rose from 0.2% in the three months ending April 2012 to 6.8% by the period ending April 2013
It appears this low cost Lumia 928 may be a strategy by both companies to capture the "mobile phone upgrade market" from the bigger companies like Apple who are still struggling with investors because its recent lack of innovation. Watching Nokia and Microsoft work together is refreshing and their partnership appears to be working as they continue to grow their market share.
Possibly on the high-end, Nokia may not be able to walk with the big boys yet. But strategically it looks like the company is winning over customers to its phone. Even though it still faces challenges, I believe the company will continue to grow bit by bit. This observation of mine can be backed up not only by Lumia sales statistics, but also by the positive conversion rate from feature phones to smartphones. Nokia and Microsoft working together seem to make a good team and it's helping NOK get back on its feet.