Apple's iPhone 5 Improves Nokia's Turnaround Chances

Sep.17.12 | About: Nokia Corporation (NOK)

Investors have shown their disapproval over a lackluster Lumia launch, as we have already discussed in our recent update on Nokia (NYSE:NOK). However, there have been a number of other major product launches in the last couple of weeks. The most important one for Nokia was Apple's (NASDAQ:AAPL) iPhone 5 launch. Nokia could not have hoped for a better post-launch scenario.

Techies and consumers alike are comparing the Lumia 920 to the iPhone 5, which would not have been imaginable a couple of years ago. The launch of the iPhone 5 has received mixed reactions from stakeholders. The launch was almost exactly what we had predicted; and this predictability is a huge letdown since Apple is always expected to surprise. Unlike most of its competitors, a product launch is very important to Apple because of its limited product line; more than half of its revenues come from a single product (iPhone). We believe the lack of a 'wow' factor in the new iPhone 5 has further improved Lumia's chances at succeeding. Our analysis shows that the Lumia is a technologically superior phone compared to its alternatives, and can be a credit to Microsoft's (NASDAQ:MSFT) and Nokia's share prices. Therefore, we maintain our buy rating for NOK.

iPhone 5

We have formulated a table to analyze the difference between the iPhone 4s and iPhone 5. If we start with dimensions, there has been a significant increase in height, with the new phone being 0.37 inches taller. The increased size should have brought about an increase in weight; however, a thinner body gives a 0.95 ounce decrease in weight (24% lighter as compared to the iPhone 4s). Capacity has remained the same for both phones. The increase in screen size called for an improved display. The aspect ratio has been improved from 3:2 to 16:9, with an 1136x640 pixel resolution.

The camera on the device remains the same in terms of pixels, but according to Apple, the dynamic low-light on the iPhone 5 gives a much better quality. The front camera has been changed from VGA to 1.2 megapixels, and is not capable of recording 720 HD videos. Two major hardware changes have been the upgrading of the processor to A6, and the inclusion of 4G LTE.

In our preview of this launch, we had discussed the high probability of the 4G LTE feature; however, the chances of litigation by Samsung remain. The battery has been improved; if we analyze it in purely standby statistics, it brings about 12% more battery time as compared to the iPhone 4s. Apple's brand name aside, this analysis shows that the new phone brings no new stimuli that could make users shift from the 4s to the 5.

Dimensions

0.37 inch taller/ weighs 0.95 ounces less

Current capacity

Available in 32 & 64 GB

Display

16: 9 aspect ratio (from 3:2)/ 1136x640 pixel(from960x640)

Location

No Change

Camera

dynamic low-light mode; front-facing for main camera/ 1.2-megapixel Front camera with 720p HD video recording

Sensors

No Change

Connectivity

Rev. A and Rev. B/ LTE

Battery life

Standby batter life increased by 25 hours/Wi-Fi browsing time increased by 1 hour,2 hours more browsing on 3G

Processor

A6 processor

Current carriers

Carriers are only AT&T (NYSE:T), Verizon (NYSE:VZ) and Sprint (NYSE:S)

Click to enlarge

*This table only shows incremental changes between the iPhone 4s and the iPhone 5.

Lumia 920 vs. iPhone 5

There are a number of different competitive analyses of the iPhone 5 with major competitors, available online. Therefore, we will focus only on the winner (in our opinion) in each of the 10 categories that we have already discussed above. If we talk about the phones' external body and feel, the iPhone 5 is the winner, with an aluminum body and metal buttons. The Lumia 920 has a better display, with its 332 ppi and 1,280x768 pixels 4.5 inch screen. The camera on the iPhone 5 and the Samsung Galaxy S3 is 8MP. The Lumia 920's 8.7MP camera makes it superior, especially since it comes with PureView technology. The Lumia's mapping technology is superior to both the S3 and the iPhone 5, primarily because of Navteq. When it comes to processors, analysts believe that the snapdragons onboard the Lumia 920 are more powerful as compared to the A6 chip.

China

The Unites States is Apple's biggest and most reliable market. More than 39% of Apple's total revenues are generated from the U.S. Therefore, the Nokia Lumia will have to face a lot of competition from Apple in U.S. markets, and any hoping of dominating in the market are unrealistic. The good news for Lumia investors is that U.S. markets, although important, are not everything. Nokia can generate enough sales from China to make the Lumia a blockbuster phone. According to a recent research by Mckinze, China is quickly becoming a huge market for high-end consumer products. The largest telecom services provider in China, China Mobile (NYSE:CHL), has signed up for the Lumia 920. Nokia will have to ensure the Lumia can support TD-SCDMA infrastructure so that it can be used on CHL networks, which it has been hesitant to do in the past. This is big news for Nokia, as CHL has more than 650 million subscribers in China. A success in the biggest mobile market in the world would be a big win for Nokia and WP8.

Conclusion

Nokia is currently trading at $2.98, with patents worth at least $2.30/share, and has a very good phone on the market. Therefore, Nokia has a lot of upside potential. More welcome news for Nokia investors is Verizon (VZ) signing up for the Lumia series. AT&T and T-Mobile are already selling the Lumia series in the United States. We believe Nokia can garner a lot of sales from China, and do respectably well in the United States. We believe an average iPhone 5 launch has improved the chances of Nokia's Lumia-fueled turnaround. Our analysis shows that Nokia currently has the best devices on the market. Therefore, we believe Nokia is undervalued, and we maintain our buy rating on NOK. We are bullish on Apple, and expect strong sales of the iPhone 5; however, as Nokia is a turnaround story, there are higher profit margins available to investors.

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

Business relationship disclosure: The article has been written by Qineqt's Technology Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.