Nokia Illuminates Its Future

Sep. 6.12 | About: Nokia Corporation (NOK)

If there was one thing that was evident while watching the Nokia (NYSE:NOK) announcement of its latest smartphone, the Lumia 920, it was that it and Microsoft (NASDAQ:MSFT) are focused completely on the user experience with the device and not on the specs. The entire hour-long presentation was focused on what the phone and the Windows Phone 8 OS could do for the user. If the Lumia 8/900's were stop-gaps and market research into what was needed for them to build the killer phone for the Windows Phone platform then the 920 is supposed to be that very thing.

So, is it?

It's a good question and without pricing or battery life data it is hard to answer it. What is obvious by choosing a dual-core Qualcomm (NASDAQ:QCOM) Snapdragon S4 as opposed to the quad-core is that they certainly were considering battery life when they put the phone together. The 2000mAhr battery is another. It's not like Microsoft and Nokia couldn't have sourced the quad-cores if they wanted them. It's a matter of design. Quad-core SoC or integrated wireless charging and a camera so advanced that they expect it to rival your DSLR and make you consider putting it up on Ebay (NASDAQ:EBAY)?

Nokia chose the latter options.

If at any point in the presentation Nokia could have been accused of catering to the slobbering tech geeks in the audience it was in the painstaking detail the presenters went over the technology in the PureView camera system in the phone. It's hard to fault them. The results are spectacular. It is certainly a distinguishing feature and elicited the only cheers and murmurs from those assembled. The phone's ability to take great photos and video in low-light and while in motion is impressive. But is that enough to make people want to own one? Do you buy a smart phone for the camera alone?

No. The brilliance of the iPhone is not that it was the first to market or that it is peddled by Apple (NASDAQ:AAPL). The iPhone 4s does not do any one thing spectacularly it does them all well and that's what makes it spectacular. No matter what one thinks about Microsoft, Nokia or Windows Phone, one thing that must be acknowledged is that they understand that design concept and they are implementing it in a way that is fundamentally different than either iOS or Android.

And therein lays the nugget of why Windows Phone and Nokia have a chance. The latest market numbers from Kantar on smartphone sales are encouraging in light of the next generation devices were just around the corner. U.S. market share did not drop year over year but held at 3.3% in July, whereas, in Europe, Windows Phone market share rose 1.5% to 5.2%. But, other than Android, all other OS's lost share, especially Apple. In Brazil, where a year ago Symbian had 71% of the market, market share rose 323% to 14.9%. So, while Nokia lost a huge portion of their user base in one of their best markets (outside of Finland) the numbers prove that Windows Phone is capable of connecting with a significant portion of a population.

Brazil

OS

July 2011

July 2012

Change

Symbian

71.7%

22.0%

-49.7%

RIM

4.0%

4.5%

0.5%

iOS

3.2%

7.5%

4.3%

Windows

4.6%

14.9%

10.3%

Android

14.0%

46.8%

32.8%

Bada

0.4%

3.3%

2.9%

Other

2.2%

1.1%

-1.1%

Click to enlarge

And that is something the platform had yet to prove. Microsoft is completely committed to Windows 8 and that alone will keep Nokia pushing forward as it matures. Make no mistake Windows 8 is, effectively, a new operating system and Microsoft has to convince users of its usability and superiority to what has come before or else risk losing a huge swath of their current user base forever. It's a gamble that has a number of companies' futures riding on it.

The detractors I have read on the Lumia 920 keep focusing on stats: the camera is only 8MP, there is no microSD slot, etc. But, again, that is missing the point of the exercise. 18 months ago Windows Phone and Nokia had nothing except Stephan Elop's word. Now they have phones that are the equal to the best everyone has to offer. For both things to have developed that fast, in both hardware and software, and in time for Nokia to soft release the phones before the reveal of the iPhone 5 is a major accomplishment for both companies.

But it's obvious they have a lot of work to do. The lineup is limited and the carrier deals are still too few in the major market, i.e. the U.S. and China. The phones are good, the feedback from Windows Phone users is very positive and now they have to get the carriers and their sales staff to sell the phones in the U.S. There's no worry about Nokia's non-smartphone business. The Asha line is profitable and growing Nokia market share in the important markets of China and India where they can build and retain brand loyalty but the future is in smart phones and tablets.

Wall Street bought the rumor and sold the news on Wednesday, dropping the stock 14% back below $2.40 per share. The Lumia 8/920 are not a home run, but rather a solid double. The 920 is a competitive flagship phone and that won't be enough to move the stock but it will be enough to get them back up to the plate in a few months' time.

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