Yesterday, Nokia Corporation's (NOK) share price was up by nearly 10%. Many people wonder why the company's share price is doing so well on a day when the overall market is down. Obviously, the rally in Nokia's share price is not a result of the traditional Nokia Throwing Olympics in Finland. Also, it is probably unrelated to Apple's attorney Harold McElhinny, who walked into the courtroom with a Nokia Lumia to show Samsung that it can build a great phone without copying Apple's products. Then what caused the rally in Nokia's share price? I believe that the rally is a result of some positive developments relating to Nokia in the last 24 hours.
First, Verizon Communications (VZ) will be backing the new Nokia phones once the phones are released next month. Once Verizon starts selling Nokia's high-end smart phones, the Lumia's US sales can easily double. Currently, AT&T Inc. (T) is the only company that can sell the company's flagship phone Lumia 900. Verizon wants to improve its margins by offering its subscribers different phones, and Nokia's phones will provide Verizon with much better margins than Apple's iPhone. Reportedly, Verizon will attend Nokia's annual event on September 5; however, the company will have to wait a few months to be able to sell the company's flagship phone due to the exclusivity agreement between Nokia and AT&T. As I mentioned in my last Nokia article, AT&T will refuse to unlock the Lumia 900 phones until at least October of this year.
Second, Nokia partnered with Sony Corporation (SNE), Qualcomm Inc. (QCOM) and some other companies in order to work on an indoors GPS. This GPS is designed to help people find the locations they are looking for in large settings such as shopping malls, hospitals and event centers. Nokia's blog passed on the good news by saying: "The alliance will be working together on the innovation and promotion of a new standard-based short-range wireless technology that will make it possible to locate objects or positions indoors with extremely high accuracy using mobile devices." While this may be a minor detail, it is important enough to show that Nokia will continue to go above and beyond the competition to provide unique value to the customers.
Third, the company announced that it is moving one of its European headquarters from Austria to Hungary. The move serves as a part of the restructuring effort going on in the company. There aren't many details as to why the company decided to move from Austria to Hungary or whether it will keep the current employees at its new office. This is a positive development, because it shows the company's determination in restructuring itself. I am suspecting that there might be some tax benefits for the company in this move as well.
Fourth, Nokia is still world's largest mobile phone company. A study showed that despite losing much of its market share, the company still has 28% of the market share in the global mobile phone market. Samsung was a close second with 26% of the market share. Keep in mind that Samsung reports a much larger profit per phone sold than Nokia. Nokia will have to find a way to increase its profit margins, and this is exactly what the company has been working on by cutting costs all over the place.
Fifth, Nokia's cheaper phone brand Asha is reportedly doing pretty well in India and other parts of Asia. While Asha phones don't offer much to Nokia in terms of profit margin, it will buy the company some time before it can gain market share in the high-end smart phone market. After all, the company's brand image in Asia is still very strong, and half of the world's population lives in Asia.
Overall, yesterday was a good day for Nokia. The company continues to improve itself, innovate and fight for survival. This fight will not be quick and easy, but it is likely to be successful. If the company shows investors that its survival is no longer in question, the upside potential will be very high for the company's share price. If you are far deeply underwater on Nokia, this may be a good time to sell covered calls on your Nokia positions in order to reduce your breakeven price as the calls currently come with nice premiums.