With this article I intend to focus specifically on Windows Phone in the following six months including the drivers and market dynamics which should help to provide some investing ideas over the short to medium term.
Where we are now
At the moment Nokia (NYSE:NOK) is selling 7.4 million Lumia phones per quarter, if we add in the other manufacturers Samsung and HTC sales are knocking on the door of 10 million units per quarter. To put this in perspective the number two player Apple sold 32 million in the previous quarter and Android sold 177 million. If sales continue at this rate they will be fast approaching a market share which makes it an important platform that developers cannot ignore.
What is coming up in the next six months
GDR3 release - October/November
Larger screens, higher resolution and faster processors - November/December
Windows 8.1 release - October
Windows Phone 8.1 release - 1st Quarter 2014
This is an update to Windows Phone that enables it to compete specs wise with any phones out there. Some of the specs wars are overblown but they are important marketing points so it is an vital area to compete effectively. There is also talk of additional features being back ported to this release such as the much requested notification centre and separate volume controls. These additional features are still rumours so nothing is confirmed.
Larger screens, higher resolutions and faster processors
As a result of GDR3 we should see some exciting new hardware coming towards the end of the year for the holiday season, certainly from Nokia and perhaps some of the other manufactures will release high end Windows phones too. Windows Phone already runs great on lesser hardware and removing any perceived barriers between high end Windows Phones and Androids will definitely help with the perception.
It's almost certain that Nokia will be releasing a 6 inch phablet within this time frame and at this point Nokia will have all the different form factors and price points covered in their range. For an idea of what the Nokia Phablet will look like you can see some leaked pictures on The Verge. There are multiple credible reports about this phablet so it is almost certain to be announced at a planned reveal on the 28th September.
The only additional model that is missing is a flagship phone on par with the Galaxy S4. Judging by previous flagship releases this should come early next year but they may surprise us, the pace of releases from Nokia has been steadily increasing of late.
Windows 8.1 release
This is not directly a Windows Phone milestone but it is very important because Windows 8 can be an excellent driver for Windows Phone sales. For casual users unfamiliarity with the operating system is a large barrier to entry. If you're using Windows 8 on your desktop and more importantly if you're finding it an enjoyable experience then switching to Windows Phone becomes a lot easier.
If 8.1 manages to turn around a lot of the negative press there could be much stronger sales heading into the holiday season and quarter one. This will bode very well for phone sales, so keep an eye on what is happening in this space.
Windows phone 8.1 released
Lastly we have the update to the phone operating system, Windows Phone 8.1. At present not that much is known about this update, the main features that can be guessed at are notification centre and a lot of small features that users have been requesting such as separate volume controls and orientation lock. There will hopefully be additional features such as kids room and live tiles that help to keep it fresh and add important differentiation. The one important point is that all Windows Phone 8 users will be able to receive this update so there shouldn't be a marked slowdown in sales such as was seen in the transition from version 7 to 8.
Some users have complained about the pace of Microsoft updates to Windows Phone. This is a fair accusation but if you step back for a second and take a look at is as I've demonstrated on a six month timeline you can clearly see there is a lot of good news in this period that will continually refresh the experience, keep the phones in the headlines and bring new users to platform.
Additionally within this time frame the app gap should continue to close. Windows Phone has now cemented itself in position number 3 and it would be very unlikely that Blackberry in its current state could turn this around. Every week more big name apps are coming to the platform and it is no longer an afterthought, it is a serious and growing market.
In conclusion I can only see the market for Windows Phone getting stronger and stronger in the medium term. If Samsung start to take the platform more seriously, which I believe is likely, then 20 million sales per quarter should not be that far away. Nokia have built up a great lead similar to Samsung on Android and if they can maintain this position at the same time as the platform continues to grow the prospects for the smartphone division are looking rosy.
I recommend holding Nokia during this period due to a solid release schedule with improvements in hardware, software and visibility of the platform right up until the end of quarter one. Possible bumps in the road are that Windows 8.1 does nothing to improve the perception over Windows 8. I consider this unlikely because the majority of early feedback from tech sites has been very positive. Further ahead Windows Phone 8.1 may not bring anything exciting to the table and perhaps it may not achieve feature parity with IOS and Android. Overall the Windows Phone platform is going to go through a growth spurt in the next six months and if they play it correctly Nokia can grow right alongside it.
Disclosure: I am long NOK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.