In my previous article, Nokia Will Outperform Apple, which was written three weeks ago, I looked at the sum of the parts of Nokia and suggested that Nokia (NOK) is worth between $13.5 billion and $19 billion or $3.70 to $5.10 per share. Since that was an immediate upside of 35 to 90%, I suggested that NOK should outperform Apple (AAPL) as an investment over the medium term.
Since that time two important developments have occurred:
(1) 1.) The Apple iPhone 5 was released and opening sales appear to have slightly disappointed.
(2) 2.) Nokia officially announced a release date of the Lumia phones on AT&T.
Let's look at how the market and media perceives these two events.
First, the iPhone 5 continues to appear to be only a minor variation over the previous rendition, the iPhone 4S. The most visible changes are:
- Slightly larger screen
- 18% thinner
- 1/5th lighter
- The larger screen allows for up to 20 app icons to be shown at the same time vs 16 on the older version.
- Camera captures images slightly faster, allowing you to take pictures in low light.
- Camera now has a panorama mode allowing you to piece together photos to make a wide picture.
- Camera can now take HD video.
- Now connected to the fastest cellular data network called LTE, although it is one of the last smartphone makers to do so.
Some important problems with the newer version include:
- Lightning Port connector that connects to speakers, docking stations, wall outlets is much smaller than the older 30 pin connector, making it incompatible with older versions. This will set you back $30+ if you want a new adaptor.
- Apple replaced Google Maps with its own proprietary mapping app, which appears to have some major glitches.
- Newer phone scratches and scuffs more easily.
And sales have arguably been relatively tepid compared to estimates, with some analysts cutting estimates for the upcoming quarter in part due to supply constraints and weak forecasts from Skyworks and Jabil Circuit, two suppliers to Apple.
It is still my argument that the major catalysts for Apple iPhones have already passed. That is, AAPL received a major shot in the arm 18 months ago when its exclusive contract with AT&T ran out and all major wireless carriers, including Verizon, picked up the iPhone. With this catalyst gone and with other smart phones playing catch-up in terms of features, I believe AAPL's profits might have peaked over the medium-term. Over the longer-term Mac sales will continue to power earnings higher, but the share price of Apple might stall out for a while until this happens.
The Lumia 920 still hasn't been released to the public or at least to editors and reviewers alike. However, what we do know is they have some very interesting new features:
- Wireless charging
- Video editing - allows you to take videos and manipulate the videos in such a way that allow you to keep one part of the video rolling while freezing the rest of the video (see this video on Youtube as an example - go to around 2:30 in the video).
- Image stabilization - in side by side tests, the Lumia 920 wins.
- Super sensitive touch - allows you to manipulate the screen while wearing gloves.
More important to the value of NOK, though, in my opinion is the deal it signed recently with Oracle (ORCL). Oracle will expand the usage of Nokia's store of map data and location services to its enterprise customers. This is on the back of news that Amazon (AMZN) is using Nokia maps and Groupon (GRPN) Local Deals are being added to Nokia Maps. The Oracle deal is important because it expands Nokia's reach to business customers, who can use the location services to map out things specific to their own needs. Companies can now integrate Nokia's mapping technology with Oracle based software. The biggest advantage Nokia maps has over Google Maps or Apple Maps is that it is not reliant upon a data connection. This is very important and is a major reason why Nokia navigation technology owns 90% of the automobile market.
I continue to believe that Nokia has more upside potential than AAPL over the near term. Apple is battling a lack of near term catalysts while Nokia is still undervalued relative to the sum of its parts. I would recommend investing in NOK over AAPL over the next year to 18 months.