Up until this week, if you asked Siri, Apple's (AAPL) virtual assistant, which was the best smartphone ever, the answer would be Nokia's (NOK) Lumia 900, not the iPhone. I'm sure the apparent kink was music to the ears of Nokia, which just rolled out two new phones that are desperately needed to help improve its bottom line.
The fun over the Siri snafu was short lived. The Siri voice assistant now answers "iPhone," when asked what's the best smartphone ever. All jokes aside, what Siri says is likely the least of Nokia's concerns. The company's finances, and its stock have, deteriorated as it has tried to compete in a market dominated by Apple and Samsung. This is why so much is riding on the success of the latest phones.
The phones are the Nokia 110 and Nokia 112. Nokia designed them to appeal to young, urban consumers who want to experience a fast, affordable online experience, according to Nokia. Furthermore, the phones are intended to be ideal in communicating across Facebook, Twitter and other social networks. Priced at a low $45, the phones will specifically sell in emerging markets in Asia, Europe and Latin America.
Nokia 110 and Nokia 112 were rolled out on the heels of the Lumia 900, which is touted as one of the phones that could have a meaningful impact on Nokia's finances. It was launched in April. It is being sold by AT&T (T). Featuring Microsoft's (MSFT) Windows platform, the Lumia 900 is being marketed as an alternative to Samsung phones powered by Google's Android platform and Apple's iPhones.
Competing with Android phones and iPhones, which together make up more than half of the market share for smartphones, is a hefty goal to say the least. In mid-May, Samsung was crowned the number one maker of cell phones for the first quarter of 2012, replacing Nokia. Samsung sold 86.6 million cell phones compared to Nokia's sale of about 83 million.
Even if sales of the Lumia 900 and the new phones soared, Nokia would still have a lot of ground to make up.
When Standard & Poor's downgraded the company in April, it said it expects Nokia to report significantly lower margins and cash flows this year than had been previously expected. Furthermore, the rating agency said it expects revenues from Lumia to grow over time, but not sufficiently enough to offset the rapid decline in the revenue from Nokia's Symbian-based smartphones over the next few quarters.
In Nokia's favor is the demand for the Lumia 900, which is filling a void in the smartphone market. It's doing so by offering a phone that is more affordable than most of the Android powered phones and is definitely cheaper than the iPhone. The Nokia 110 and the Nokia 112 should further help the company by providing more phones that offer the popular features many smartphone users demand, without the high costs. Nokia's phones have wholesale prices of less than $200, compared to Samsung and Apple handsets that can easily exceed this amount.
While the two new phones Nokia has unveiled are noteworthy, I think Nokia has to take additional steps to compete in the mobile phone market. Consumers are not just demanding the latest in smartphones, but more of them are turning their attention to other gadgets, like tablets. Here again, Nokia lags Samsung and Apple.
On the horizon, however, is a tablet that Nokia is manufacturing. It features Microsoft's Windows 8 operating system. It will be interesting to see what impact adding a tablet to its line of products will have on Nokia's finances. I understand naysayers who say the company should focus on shoring up its core business, which is manufacturing handsets. On that same note, I can't help but to believe that the company stands to benefit from offering the products that are in demand.
Keep in mind that while Samsung and Apple dominate the smartphone device field, they are not the only competitors that Nokia must contend with. In fact, given the price point of Apple's products, Nokia's customer base is completely different.
Among Nokia's closest competitors are Ericsson (ERIC) and Motorola Mobility Holdings (MMI). Of them all, Nokia's quarterly revenue growth is the worse at -29.3%. It is -3.8% and 1.5%, respectively, for Ericsson and Motorola.
Nokia's gross margin is in line with these companies. It is 28.96%, compared to 34.61% for Ericsson and 25.33% for Motorola. I think this margin is in line with the company's quest to roll out new devices.
In the future, I would like to see Nokia form relationships with other carriers besides AT&T. The two worked closely together in unveiling the Lumia 900. This type of partnership seems to have been successful as it is reported that demand for the phone is outstripping the supply.
Perhaps the best partnership would be with Verizon (VZ) considering it is the largest wireless provider.
All signs point to Nokia needing to take significant steps to compete in the mobile market. I would hate to hear that Siri answers Nokia when asked, "Which is the latest phone maker to go under?"