Nokia: The Creeping Dark Horse Of The Smartphone Market

Jan.19.12 | About: Nokia Corporation (NOK)

The smartphone industry is booming and only looks to continue expanding as players in the market attempt to lure the most consumers. Google's (NASDAQ:GOOG) Android software continues to put pressure on the Apple (NASDAQ:AAPL) iPhone while the world waits to see just where Apple is headed after the passing of Steve Jobs. In a last ditch effort to maintain prominence in the smartphone market, Nokia (NYSE:NOK) has partnered with Microsoft (NASDAQ:MSFT) to offer a Windows 7 phone. With so much movement in the market and the number of key players struggling for dominance, which stock is the safe bet in the smartphone market?

I think that down the road, Nokia's intellectual property, namely, patents, could be a king-maker. In the near-term, Nokia is making a product-based bet. Specifically, Nokia's Lumia 900 will reportedly include a 12 MB camera, that, due to consumers' desires for the best-of-the best, could disrupt the erosion of Nokia's market share. Note that this would be slated for the third quarter, but it would be disruptive nonetheless.

While Nokia is notably suffering in the smartphone market, the company still maintains the lead in the industry. Attention is shifting from Nokia, however, as Android software lures consumers to Motorola (NYSE:MMI) and Samsung phones that support the platform. In an attempt to recover and insulate itself from its competition, Nokia has teamed up with Microsoft to offer the Lumina 900, which will be sold by AT&T (NYSE:T) and Deutsche Telekom subsidiary- T-Mobile in the months to come. Leapfrogging technologies, like a 12 MP camera, and other potential innovations

Microsoft, now a viable income stream for investors, too, has sunk billions of dollars into Nokia's Lumina 900 launch and, while it is uncertain whether Nokia stands a chance against the iPhone and Android platforms in the long haul, it is sure to get some attention in the short term. Should the launch of the Windows platform be successful, Microsoft will have found a way to enter the market and compete with Google and Apple in a market that has been dominated by the two. Previous attempts at a Windows smartphone platform have ended in failure and Microsoft is hopeful that they can use Nokia's ability to move a large volume of phones on the market.

The rising popularity of Google's Android software is nothing but a benefit to manufacturers that provide phones for the software. Motorola and Samsung stand to gain the most from Android's success in the short term, but Motorola is struggling to remain profitable as it competes with a plethora of alternate manufacturers that provide phones on the same platform. Should Nokia and Microsoft pull off an upset with their latest joint release, it could end up hurting Android manufacturers that compete with each other as it lures away business.

Research in Motion (RIMM) has all but fallen into obscurity as the Blackberry continues to fail against both the iPhone and Android platforms. Research in Motion stock has plummeted over the past year from $70 to $15 per share and speculators are still uncertain of whether the company has reached the floor yet. Without a major overhaul or the release of a more innovative and attractive product, the Blackberry is out for the count and Research in Motion will continue its tailspin.

If any company is positioned to win on the surface, it is Google, which is unaffected by the fierce competition that is taking place between the purveyors of phones that support its platform. Many investors remain unsold on the post Steve Jobs Apple and wait to decide whether to jump ship or stay the course. Throughout all of the confusion, Google is able to remain steadfast and continue to expand its influence on the market in the wake of possible competition from Microsoft and Nokia, which are more likely to hit Apple harder if the launch is successful.

The dark horse, however, is Nokia. A successful Lumia launch is needed in the short-term. However, as other companies are investing in Nokia's new flagship phone, the company looks to be spearheading price compression. The move, by this dark horse, will be to introduce far cheaper, $25-$75 entry point smartphones that do not sacrifice too many of the bells and whistles of more expensive phones. This will potentially send Apple, Research in Motion, and Google scrambling, as they attempt to close a price gap on Nokia's inexpensive phones. Indeed, Nokia may have an ace trick up its sleeve to regain coveted market share and outdo its well-heeled rivals.

Despite the uncertainty surrounding Nokia's Lumia 900 release, Nokia is my favorite smartphone stock this year. The company has been able to move phones consistency in high volume despite fierce competition from both the Apple and Android smartphone platforms. Nokia has been looking for the right platform to run on its vast array of smartphones and if the Lumia 900 launch is successful it will only be the precursor to a myriad of Windows 7 phones to flood the market in coming years. Microsoft and Nokia may provide each other with just what each company needs to finally move past the obstacles that have kept each company from becoming contenders.

No stock can fair any worse than Research in Motion in this market this year. Blackberry is all but obsolete and forgotten and Research in Motion has yet to come out with a contingency plan to rebound from the failure. 2012 will be a long year for the company as well as the year that could decide the fate of Nokia's future in this market as well.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.