The Finnish mobile giant Nokia (NOK) has shown a great fight back with its Lumia range of smartphones. The company is not only coming out with new Lumia smartphones such as the Lumia 625 and Pureview 1020, but is also making its existing line of Lumia phones more competitive by lowering their prices. The best selling Lumia smartphone saw its price lowered by ~30-40% in the Indian market. The Lumia 520 has been one of my favorite smartphones for the price and feature combinations. This is the only competitive non-Android smartphone in the market, currently as Apple (AAPL) does not have a low end smartphone and Blackberry's (BBRY) Curve range of phones are too old be competitive. Nokia has been making some extremely smart moves in 2013 and the results have shown in the continuous high double digit growth in Lumia shipments. The lower pricing of Lumia 520 and 620 should further help build momentum of Nokia's shipments in the crucial quarters leading to the holiday season. I remain optimistic about Nokia's stock, given its currently cheap valuation and a turnaround in its smartphone segment.
Nokia lowers Pricing on Lumia 520 and 620
Nokia's Lumia 520 is the cheapest WP 8 smartphone in the market with a price of around ~$160. This phone has been one of the most popular smartphones in this category, given the number of features at this price range. The phone has a good 4.3 inch screen size with free Windows office and HERE maps. The design and looks are extremely good compared to the cheap plastic found on Android phones. The Lumia 620 is the second cheapest Lumia with a price of ~$220. Now Nokia has made buying these phones even more attractive by allowing exchange schemes for these smartphones. Note most of the other major smartphone sellers such as Apple, Samsung (OTC:SSNLF) and Blackberry have already come out with smartphone exchange schemes. These are nothing but disguised discounting schemes to promote sales. Nokia too has joined the bandwagon and now you can buy a Nokia 520 for only ~$120. This makes the WP 8 phone highly competitive with the cheapest Android which sells at ~$80-100. The value proposition of the 520 is much higher than these Androids in my view and 520 sales should surge.
Finnish handset maker, Nokia has begun a major smartphone exchange campaign offering up to 6,000 discount on its flagship mid-range phones Lumia 520 and 620 in India.
Nokia's exchange scheme called 'Lumia Smart Buy Back Offer' reduces the MRP of Lumia 520 from 11,289 to 7,289 and Lumia 620's price 15,999 will drop to 9,999.
Source - IB Times
Nokia 625 also makes an Appearance
Nokia has been quick off the blocks in releasing the new large screen Lumia 625, after announcing the phone a month ago. The smartphone has already made an appearance for pre-order on leading India e-commerce retailers, and I expect the phone to be shipping to end customers by end of August. Nokia has become much more nimble in recognizing and quickly responding to changing customer preferences in the smartphone market. Customers prefer large screen sizes with reasonable prices, and Lumia 625 should be an ideal fit. Samsung and Sony (SNE) have already released both mid and high end smartphones with large screen sizes, and Apple is also been rumored to be working on a tablet. While the success of the 625 is not certain, the key takeaway is that Nokia seems to have become a much better organization attuned to its customer needs.
Nokia has become the only significant Windows Smartphone company
With BBRY in serious trouble due to the disappointing BB 10 shipments, Windows 8 has become the 3rd ecosystem after Google's (GOOG) Android and Apple's iOS operating systems. Microsoft (MSFT) is desperate to become a major mobile player, and Nokia seems to be its only bet, as the other players have put all their eggs in the Android basket. HTC is reportedly shifting away from WP 8 completely as it cannot compete with Nokia in the Windows smartphone market. Nokia has captured ~80% of the WP 8 market with its single minded focus on the Microsoft OS. Microsoft is now heavily becoming dependent on Nokia to keep its Windows flag up in the rapidly growing smartphone market. MSFT's own attempt to grow Windows in the tablet market has been a massive flop till now. The Surface tablets shipped well below expectations leading to huge losses for the Seattle giant. Nokia's increasing importance to Microsoft should be a big reason for an investor to buy the stock.
HTC is likely to drift away from Windows Phone 8 (WP8) platform as it has seen its share in the global WP8 market drop to below 5%, while rivals Nokia has taken an 80% share in the segment and Samsung Electronics has become the second largest WP8 phone vendor, according to industry sources…HTC tried to regain its share in the Windows Phone market by introducing its new WP8-based smartphone in the fourth quarter of 2012 optimizing the availability of the new platform from Microsoft. However, Nokia appeared to have won the competition in the WP8 segment thanks to the roll-out of an array of WP8 models and its image as a specialized supplier of WP8 phones.
Source - DigiTimes
The smartphone market is going through a period of hyper competition with almost a hundred companies trying to get a piece of the ~$350 billion annual smartphone industry. While Samsung and Apple are ruling, the fast changing technology industry can change in a couple of quarters. Nokia is making a good comeback through focused execution leveraging its existing strengths. Nokia competes with all smartphone companies in all segments like Samsung. While Samsung dominates the overall smartphone market with its numerous models targeted at every segment, Apple is also looking to make an entry into the lower priced segment with a cheap iPhone. Google has raised the stakes with its new Moto X, though its success is far from certain. While competition remains high, Nokia is executing well in my opinion. The smartphone market will eventually consolidate with the elimination of weaker players. The Japanese electronics giant NEC has abandoned the smartphone market and I expect that others will also leave as profitability remains low to negative for most players.
Facing stiff competition (thanks Apple), Japanese smartphone maker NEC announced today that it will cease making smartphones. However, the company announced that it will still remain "developing and producing conventional mobile handsets" as well as continue making tablets. A decade ago, NEC was the biggest mobile phone player in Japan, capturing nearly a quarter of the market-a sign the company simply couldn't keep apace with a changing landscape.
Source - Mobile Pro
Nokia is cheap both from Asset based and Going Concern perspectives
BBRY has rallied in recent days by almost 30%, as the company formed a committee to look at the strategic alternatives to take it private. The company was heavily undervalued with a P/B of just 0.5x and with cash forming nearly 60% of its total market capitalization. The stock market rally came even as the company's operations are deteriorating. Nokia on the other hand, is seeing its operations in the smartphone segment improving almost every quarter. The company managed to buy NSN cheaply from Siemens (SI) and is seeing good traction in Lumia shipments. The company remains undervalued in my opinion with a market capitalization of just $15.6 billion. Nokia has a P/B of 1.6x and P/S of just 0.4x. Huawei and Microsoft have already indicated that they have looked at buying Nokia in the past. At the current valuation, the company is cheap given its leadership position in mapping, WP 8 smartphones and great assets such as its mobile patent portfolio and NSN subsidiary.
Nokia has executed quite well on its new strategy of focusing on Windows 8 smartphones despite coming under huge criticism. The company faced a lot of pressure as it transitioned to its new OS strategy, since sales of Symbian smartphones plummeted. However, the company is now emerging as a stronger and more focused organization after the painstaking changes. The company has been performing extremely well in increasing its smartphone shipments despite the low awareness and immaturity of the Windows mobile OS. In an Android and iOS dominated marketplace, the company is doing really well in creating a unique niche which is competitive both on the high and low end of the smartphone market. It is taking the battle to its competitors by lowering the price of its lowest priced smartphone and directly competing with the cheapest Androids. I remain positive on Nokia given its cheap valuation and well performing turnaround execution.