Microsoft's (MSFT) recent write off of $900 million worth of inventory attributed to its slow selling Surface RT device, and the recent price cuts for both the RT and Pro version of its tablets, paints a crystal clear image of the success related to these devices ... zip, zilch, nada. Microsoft has yet again failed at another hardware venture, selling an estimated 1.7 million units, compared to 57 million iPads, since the release of Microsoft's tablet last year. However, the stubborn software behemoth is showing no signs of giving up on Steve Ballmer's baby, and is committed to continue pushing out and promoting more Surface RT devices based on ARM's (ARMH) mobile architecture.
Last week pictures leaked showing a purported Nokia (NOK) RT tablet that is rumored to launch this September. As both a consumer and an investor, I was extremely disappointed. I was looking forward to purchasing my first tablet in September, and my first Nokia product since the ill-fated N-Gage. But if the rumors are true, a Nokia RT tablet would not fit my needs and wants, and I would be forced to continue waiting patiently, twiddling my thumbs until Nokia releases a Pro Tablet. As fellow contributor Andreas Hopf emphasizes, content is king, and since Windows RT cannot run legacy applications, there is a huge shortfall when comparing the versatility between the RT and Pro.
As a Nokia investor, I'm extremely worried about the prospects of a Nokia RT based tablet, especially after Microsoft's almost $1 billion loss attributed to the device. But after days of digesting this news, reading every reported article about the device, and continuously asking myself why Nokia would go through with Windows RT, I have come to realize, as an investor, that there are several bullish details regarding this device that I believe are being overlooked.
Finally, The Tablet Is Here
First, it may be smart to start with a quick overview of Nokia's rumored development of Windows based tablets. More than two years in the making, I've created a timeline to help illustrate the following paragraph.
The first hint of an upcoming Nokia tablet came in 2011 when Stephen Elop became CEO of Nokia and shared his view of tablets and the opportunity they present for the ailing cell phone manufacturer. Shortly after, in March of 2012, rumors broke that Nokia was planning to release a RT tablet with a 10' screen and a dual core Qualcomm chip for Q4 of 2012. Then in June of 2012, Microsoft unveiled its Surface tablet and Nokia reportedly delayed the release of its own tablet. Then came rumors in December of 2012, stating that Nokia was planning to go through with plans and release a 10' Windows RT tablet in February at the Mobile World Congress. While that rumor didn't materialize, a tablet was reportedly being tested on AT&T's network in June of 2013, and in July and August, pictures were leaked of Nokia's two different tablet prototypes. Because of Nokia's upcoming scheduled events in both Moscow and New York in the coming weeks, it's safe to assume that the updated tablet, leaked just last week, will be announced at one of the events.
Why Analysts And Investors Are Pessimistic
Most analysts and investors have their doubts with a Nokia RT tablet, and most have their doubts with the Windows RT ecosystem as a whole. Who doesn't? Microsoft took a $900 million hit for the devices, there is very little developer support, and several manufacturers, including Samsung, Asus and HP, have abandoned future plans for the ecosystem and are focusing solely on Windows 8 Pro tablets. Even Nokia ditched plans for an RT device in favor of a pro device at one point (or so we thought).
On the surface (pun intended), it seems like Nokia is making a terrible mistake by investing in Windows RT and following Microsoft's dead money. But Nokia is different. Nokia is the only manufacturer who can push Windows Phones in volumes thus far. Nokia has value adding applications and camera hardware that differentiates them from other Windows 8 manufacturers. With manufacturers abandoning Windows RT, Nokia will have virtually no competition in this space. And abroad, it has a particularly strong brand. Microsoft understands that Windows RT is on its last lifeline, and I believe they asked, if not begged, Nokia to go through with the RT tablet and help revive the RT ecosystem. If this were the case, I'd imagine Microsoft gave Nokia some type of financial incentive to go through with the RT device that other hardware manufacturers have not received. Here, the ball is in Nokia's court.
Say It With Me, Diversification
In my first article, I explained that Nokia was a buy because of its profound product (and business) diversification. Well, again, Nokia stands to benefit from even more diversification. Not only is it diversifying its product offering into a completely new market, tablets, but it is also diversifying within that market by eventually releasing both an RT tablet and a Pro tablet. With the help of RT, Nokia will be able to release several different tablets at several different price points, just like its phones.
Nokia has had major success with its cheapest smartphones. The Lumia 520 is the best selling Windows 8 smartphone, and the low priced Lumia 625 just sold out of pre orders for one major retailer in India. It makes sense for Nokia to follow its success with the lowly priced Lumias by entering the tablet market with a low-priced RT tablet. If Nokia manages to release a competitively priced tablet, with Microsoft Office and all of the Nokia applications included, this tablet may be a compelling buy for consumers around the world.
Where's The Camera?
My main reasoning behind the idea that Nokia's upcoming RT tablet will be its entry level tablet is due to the fact that there is no camera on the back of the device. For a company with a main selling point that is camera quality, you would think Nokia would throw one on the back of all of its devices. Again, it must be noted that these are leaks and 100% pure speculation, and it is more than likely that a camera will be added to the end product.
But if it is true that Nokia's upcoming RT tablet is the one leaked in the pictures, without a camera, then it is clear to me that Nokia's first tablet will be competitively priced, and that Nokia has many more tablets in the pipeline that will sport impressive cameras and Windows 8 Pro.
The Potential In India And Abroad
If this tablet is competitively priced, then I think its impact on the company can be profound. This tablet will most likely be a dud in the US, but for countries where the Lumia 520 is selling like hotcakes, this tablet will most likely be a success. Especially in India. I truly see this upcoming Windows RT tablet as the ultimate companion to the Lumia 520, and for countries like India, where the Lumia 520 has more than 30% of Windows Phone market share, many consumers will see the synergies between the two devices and opt to share the same ecosystem on their mobile devices.
India's tablet market is currently bursting at the seams with low-cost tablets dominating the scene. Therefore, it is imperative that Nokia's upcoming Windows RT tablet is super cheap. From 2011 to 2012, only 360,000 tablets were sold in India. From 2012 to 2013, that number jumped to 1.9 million tablets, representing a 424% growth year-over-year. Still, only 1.9 million tablets have been sold in India in a full year, and analysts estimate that the tablet market in India will grow to 7.3 million units by 2015-2016. This means the market potential for a low cost Nokia tablet is massive, especially in regions where the tablet market is in early stages of development, and where Nokia's brand is strong. Now is prime time for Nokia to jump into the tablet market, especially India's.
It's A Verizon Tablet!
Since the introduction of the Lumia 900 back in 2012, Nokia has been quite fond of AT&T. Nokia has inked exclusive deals with the telecom giant for almost all of its flagship phone releases. First the 900, then the 920, and most recently, the 1020. Nokia gets to enjoy exclusive advertising and product promotion from AT&T, but at the same time limits its total available market. It seems like Nokia is beginning to shift away from the exclusiveness platform, and instead opt to release products for multiple carriers at the same time.
The Lumia 900 was exclusive to AT&T for its entire life cycle. The Lumia 920 was exclusive to AT&T for six months. And now, the Lumia 1020 is rumored to be an AT&T exclusive for only three months. This trend should continue with Nokia's leaked Verizon tablet, and if both an AT&T and Verizon version of the Nokia tablet are available on launch day, it will be good news for investors and a good sign that future Nokia devices will drop carrier exclusivity and be available to a much wider audience from the get go.
It seems to me that the majority of investors and commentators seem to be overlooking the potential benefits of a Nokia RT tablet and are overwhelmingly bearish about the product. While it makes sense to have these thoughts, with the RT being a massive failure so far, there is hope for a successful Nokia RT tablet, especially overseas. Nokia has the opportunity to learn from Microsoft's past mistakes, and will most likely act extremely cautious when it comes to the supply of this device, making sure not to over produce like Microsoft did and avoid a massive write off. Now is the time for Nokia to jump into the tablet market, and I wouldn't write off Windows RT just yet.