I am waiting for Seppo to make it clear to me if Nokia (NYSE:NOK) can walk away from the D&S deal with Microsoft (NASDAQ:MSFT). I am now more convinced that Nokia can really give Samsung (OTC:SSNLF) a good fight in the Android phones arena. Some people are still skeptical about the 10 million pre-orders that Nokia X received in China. However, as an Asian, I firmly believe that Nokia has a blockbuster phone series in the making.
It is not only the Chinese who appreciate this low-entry Android phone. The Nokia brand enjoys premium loyalty in Asia, Africa, and Latin America. The unusual GUI and the lack of Google services, already gives the Nokia X a unique twist among the hundreds of Android phones out there today.
Microsoft's New Management Is Now iPad-Friendly
The huge interest over Nokia X in China is strong evidence that it will be the same for other countries. Nokia, in my opinion, is better off walking away from the D&S deal with Microsoft. Nadella's release of the Office for iPad app hints that the new Microsoft management has less enthusiasm for its mobile hardware division.
After years of doing anti-iPad advertisements, it's very ironic that Microsoft is now trying to squeeze a few billion dollars from the 200 million iPad users. This latest move by Nadella is an acknowledgment that the Surface 2 to date was a failure in both the consumer and enterprise market. It is also a tacit agreement that other high-end Windows 8 tablets also did poorly last year compared to the iPad Air.
Microsoft has a huge presence in the corporate world and yet this leverage failed to make the Surface 2 and other Windows 8 tablets do more sales. I am therefore thinking that Microsoft's new love for Apple tablets will extend also to smartphones. Yes, the D&S deal may still push through this year but Nadella may no longer have the Ballmer-killer desire to become the new Apple.
Why waste money subsidizing Windows tablets and phones when Microsoft can just focus on raking in easy billions from Office 365 subscriptions, mobile advertising, and services. Less enthusiasm about the mobile Windows 8 platform may mean lack of R&D, innovation, and marketing support for D&S under Microsoft.
This is just my speculation, so feel free to ignore it. I'm also wary about Elop running Devices division again at Microsoft. Perhaps it is better for the D&S employees involved to remain under Nokia. Nokia can just push through with the licensing deal with Microsoft and hold unto its phone business.
Nokia Has The Money, Distribution Network, and Marketing Savvy
Based on its last quarterly earnings report, Nokia has the money to market and distribute Nokia X phones without any cash infusion from Microsoft. If it gives marketing priority to Nokia X over the Asha platform, Nokia will certainly become tone of the top Android phone OEM players within two years.
Telcos in emerging markets will have an easy time marketing the Nokia X and Nokia+. The low price tags of these two Android Open Source phones means operators will buy them in bulk. They will then give them away for free, bundled with 1 year or 2-year low-monthly payment contracts, which even low-salary employees can afford.
However, I think Nokia will find it more profitable if it starts making high-ASP smartphones with QWERTY keyboards. It doesn't matter if it's removable or just sliding keyboard, I'm sure the telcos will be more than happy to offer high-end Android versions of the Lumia Icon, or $499 Nokia X model, if it has a QWERTY keyboard.
Nokia used to give BlackBerry serious completion in the enterprise market with its business phones like the N90 Communicator and Nokia E7 series. Before the release of the iPhone in 2007, most corporate users were either using QWERTY phones from Palm, Nokia, and BlackBerry.
I believe it was a mistake for Nokia, Palm, and BlackBerry (NASDAQ:BBRY) to think that the iPhone success was a call for them to also imitate Apple's smartphone. Palm died, BlackBerry almost died, Nokia is still struggling. The demand for QWERTY BlackBerry phones is so strong that Chen is planning to manufacture and sell units of its old BlackBerry OS 7 Bold series.
BlackBerry tried and failed with its Z10 and Z30. Most of the company's enterprise customers still prefer the classic QWERTY business phones. John Chen is now pushing for BlackBerry to return to its QWERTY roots, with 3 new QWERTY BlackBerry OS 10 smartphones coming.
Nokia's Suri ought to do what Chen is trying to do. The Nokia E7 was a great business phone and it sold very well. Nokia's high-end Lumia models, 920, 1020, 1520, failed to gain serious approval from the high-end buyers.
It puzzles me why Nokia tried to imitate the high-end iPhone 5 or Galaxy S4 for the premium Lumia series. Nokia, along with BlackBerry, had a profitable business selling high-end QWERTY phones before the advent of the touchscreen craze that the iPhone and cheap Android phones started.
I believe that Windows 8 phones could have gained better traction in the high-margin enterprise market if only Nokia made some of them with QWERTY keyboards. I hope Nokia learns from this and will come up with QWERTY models of high-end Nokia X Android phones and Lumia WP8 handsets.
Multi-Telco Deal Is Better for U.S. Market
I firmly believe that Nokia/Microsoft will have better chance of penetrating the U.S. and other developed markets if they abandon the one-telco approach for its high-end phones. Giving Verizon Wireless (NYSE:VZ) exclusive rights to sell the Lumia Icon is not helping it compete with the Galaxy S4 or iPhone 5.
It is time for Suri to abandon the single-carrier approach if he wants Nokia to be a big player again in the high-end smartphone business. Exclusive distribution deals only hampers Nokia's comeback bid in smartphones. Nokia can just make variants of the Lumia Icon, same specs but make 4 clones of the said phone and call each clone a different name. This way competing telcos can still market unique-sounding smartphones.
It's easy to do, Lumia Icon, Lumia Magic, Lumia Thunder, Lumia Alpha, and Lumia Boracay.
Nokia can be a dominant player in the premium smartphone business if it stops imitating the iPhone and Galaxy S4. Selling cheap $100 Nokia X touchscreen phones for emerging markets is great. However, there are more profits in selling high-ASP handsets to businessmen and corporate slaves.
I believe Nokia can win the approval of business/enterprise buyers by coming up with QWERTY Android and Windows 8 smartphones. Nokia sold more E7, Communicator Series phones than any other Lumia high-end phones ever made.
I'm long NOK. I like the company based on my own metrics which includes not only financial numbers and ratios. I also take into account historical achievements. Nokia used to be the undisputed champion in phones - I am betting that it can still be a champion again. My NOK position is bigger than my BBRY simply because Nokia has a negligible short interest ratio.
Please refer to the chart below for fundamental study of NOK.
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.