On October 26, Microsoft will release its Windows 8 software. According to Dan Costa and PC Magazine, Microsoft (NASDAQ:MSFT) is taking a "huge gamble" that the market will accept its fusion of traditional tablet, personal computer, and smart phone interfaces beneath this Windows 8 software platform. For Nokia, Windows 8 is a make or break event critical for viability as a going concern. Nokia, however, is likely to discover that history repeats itself with the Lumia 920. Nokia's latest effort to salvage market share will prove futile. Windows 8 is no savior. For investors, Nokia stock at $2.68 effectively trades as a call option.
The Smart Phone Market
Nokia must now toil beneath a smart phone duopoly headlined by Apple (NASDAQ:AAPL) iOS and Google (NASDAQ:GOOG) Android, which taken together, control 87% of the smart phone market. Within its latest August report, research firm comScore estimates that Google and Apple operating systems power 53% and 34% of all smart phone subscriptions, respectively. At the bottom of the heap, Research in Motion (RIMM) - BlackBerry, Microsoft - Windows, and Nokia (NYSE:NOK) - Symbian scrap and claw over the remaining 13% smart phone share. Apple and Google are further consolidating power, as evidenced by their combined 3.6% increase in share over the prior quarter. Nokia, of course, is running on fumes to the point where a blockbuster Windows 8 release is critical for survival.
Contradictory lawsuits between Apple and Samsung are evidence of steady commoditization within the smart phone market. In terms of unit sales, Samsung leads the world and serves as an effective Google Android proxy. On August 24, a San Jose jury ordered Samsung to pay $1.05 billion in patent infringement damages to Apple. The following week, a Japanese court ruled Samsung innocent of the very same charges. Today, Samsung is challenging the design legitimacy of Apple's new iPhone 5 in another round of U.S. litigation. As smart phone engineering fuses together, consumers will make choices based upon what they deem as "cool." In Wall Street terms, Apple's goodwill and intangible assets are worth billions of dollars.
The Steve Jobs halo effect lives on, as manifest by Apple's iPad, iTunes, iPod, iMac, and iPhone loop of horizontally integrated products. For Apple's third fiscal quarterly period ended June 30, this company reports sales of 26 million iPhone units. During Q3 2012, the iPhone accounted for $16 billion of Apple's $35 billion total net sales. Apple's financial success is a far cry from Nokia, which posts $2 billion in losses for its latest quarterly period. Any hopes of stemming the tide remain reliant upon technically superior Lumia 920 specifications that transform Nokia's brand image away from that of a 90's relic.
Lumia 920 Specifications
Nokia showcases its Lumia 920 as a phone "designed to wow." Nokia's Windows 8 phone arrives available in five separate colors and stands 5.1 inches tall by 2.8 inches wide. Weighing in at 185 grams, the Lumia 920 also measures 11 millimeters in thickness. The Nokia Lumia 920 features a relatively large 4.5-inch screen capable of displaying 16.7 million different colors in 768 by 1280-pixel resolution. As a camera, Nokia's latest handset is notable for its 8.7-megapixel sensor that offers improved clarity above competing smart phones. Various tech gurus, including Edward Alvarez, offer high praise for Nokia Maps. Positive commentary surrounding Nokia and Google Maps stand in sharp contrast to Tim Cook's apologetic stance on Apple's new iPhone 5 mapping applications.
The Nokia Lumia 920 offers 32 GB in built-in storage, while Qualcomm's 1.5 GHz dual-core S4 chip provides the processing power. This latest Windows 8 phone is set for launch this Holiday Season. According to Ben Woods and ZD Net, reports out of Italy claim that an unlocked Lumia 920 will retail for roughly $775. The Apple iPhone 5, alongside Samsung's Galaxy SIII and ATIV S handsets also compete for business near this same price point. Nokia signals that it is therefore willing to compete on quality, rather than price. Wall Street, of course, remains unimpressed. On September 5, Stephen Elop, CEO, unveiled the Lumia 920 prototype in New York City. That very same day, Nokia stock lost 15 percent in value.
The Bottom Line
Last April, rapper Nicki Minaj danced the night away in Times Square for the Lumia 900 launch. Prior to that, Jeff Bradley, AT&T executive, exclaimed that the Lumia would be a "notch above anything [we've] ever done." AT&T was to then offer the Lumia 900 for $99, when customers agreed to the terms and conditions of a two-year contract. Due to a minor technical glitch, Nokia offered a $100 rebate on these phones, to effectively give the Lumia 900 away for one month. With the smoke clearing, however, Stephen Elop describes Lumia 900 sales as "mixed." In response to the sales shortfall, The Wall Street Journal reports that Microsoft is also now packaging its Windows software within Huawei Technologies handsets. Yet again, Microsoft demonstrates the capacity to compete against its own partner.
Sales wise, the Lumia 920 launch is set to degenerate into another flop at Nokia. Consumers will not forego iPhone 5 and Galaxy SIII purchases, in favor of the Lumia 920 and its well-received camera imagery and mapping technology. Unfortunately for Nokia, this Lumia 920 event will only extend Nokia's 30% year-over-year smart phone sales decline. For the latest quarter, Nokia closes out it books with $13.4 billion in cash above $21 billion in liabilities. Of this $21 billion, Nokia owes $6.7 billion on interest-bearing debt. During the latest quarter, Nokia eked out $131 million in operating cash flow, but still suffered a $67 million decrease in its cash position due to investment and financing activities. For the first half of 2012, Nokia is grinding through a $708 million decline in cash relative to the year-over-year period.
Last year, Google agreed to acquire Motorola for $12.5 billion, largely for patents to defend its Android portfolio against litigation. This move may indicate that Nokia's goodwill and intellectual property are not valued and coveted assets that can be sold for immediate cash. To buy time, Nokia brass can order another round of layoffs and eliminate dividend payments, which would save this company at least $1.5 billion over the next year. Without a blockbuster product, however, Nokia is simply floating the note until its ultimate bankruptcy.
The Nokia Lumia 920 Windows 8 smart phone is no blockbuster.
Disclosure: I am long AAPL. 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.