The launch of the Lumia 920 and Lumia 820 was not a total success due to the non-announcement of carriers. However, this has been mended now that it's known the Lumia is available from the three biggest U.S. carriers: T-Mobile, Verizon (VZ), and AT&T (T). Extremely conservative estimates give a $2.30 per share value for Nokia's (NOK) stock, and at the current price that is a maximum downside of 17%. On the upside, the success of Microsoft's (MSFT) Windows Phone 8 can drive the P/E to 15 times and above (the ratio is currently 9 times). Carrier announcements make us more optimistic about Nokia; therefore, we maintain our buy rating on the stock.
The launch of Microsoft's WP8-powered phone by Nokia was a major media event. With their beautiful design, superior hardware, and advanced technology, Lumia WP8 phones did not disappoint. One major flaw in the presentation was no announcement regarding carrier partners, which created a bad sentiment in the market. At the time, shares of Nokia plunged. Since then, the company has released more details about carriers for its Windows 8 phones. Coverage will be essential to Lumia's success, and thus to Nokia's turnaround. Official announcements and leaked information point toward the following information about Nokia's carrier coverage:
A big concern for investors and users alike was the availability of superior Lumia products on carriers other than AT&T. No matter how good the product is, carrier loyalty (even if limited) is a fact, and the non-availability on a particular carrier means lost sales and disappointed fans. Stakeholders breathed a sigh of relief after news broke that the Lumia would be available from T-Mobile. A variant of the Lumia 820, the Lumia 810, will be available on T-Mobile's fastest HSPA+ 42 network. The 810 is a boxier version of the Lumia 820, with sharper edges and the same changeable covers. The phone will most likely be available in the $100 area, much like the Lumia 710. With applications like CityLens and wireless charging at a price of $100, it has the potential to be a winner with T-Mobile users. The 810 will be T-Mobile's first Windows 8 device, and a lot depends on Windows 8/Windows Phone 8 reception at month's end.
Verizon customers had been waiting for quite some time for the Lumia series to come to Verizon. The Lumia 920's exclusivity to AT&T was a big disappointment. Leaked information is pointing to the arrival of a WP8-powered Nokia phone at Verizon. The Twitter account that leaked the correct information about the Lumia 920 in the past was responsible for this leak as well; therefore, stakeholders could reasonably expect the leak to be legitimate. According to the leaked information, a variant of the Lumia 920, the Nokia Atlas, will be coming to Verizon. The actual name of the phone and its specifications are still a mystery and are open to speculation. Atlas will support Verizon's 4G LTE network. A first-look comparison (specifications apart) sees the Lumia 920 as a clear winner on aesthetics. It seems likely that Atlas will not be the only Nokia WP8 device from Verizon, and stakeholders should expect an announcement in this regard very soon.
AT&T was the primary investor in the marketing of the Lumia series. The Lumia 900 met sales targets, but failed to be the blockbuster that AT&T was hoping for. This failure was not due to bad marketing or bad quality of the device, but rather due to a limited OS. The WP8 is the correction of this mistake, and AT&T is getting repaid for its exclusive investments. According to sources, AT&T will enjoy exclusivity with the Lumia 920 and Lumia 820. This should be good news for AT&T users looking for the best smartphone in the market.
Stephen Elop Interview
In his first major interview after the launch, Nokia CEO Stephen Elop showed great confidence in the Lumia WP8 series. In an interview with CNET, Elop brushed aside any concerns regarding possible competition to the Lumia 920 from HTC's lookalike 8s. The non-exclusivity of WP8 to Nokia has been a major concern for most investors. Although it is unrealistic to expect that Microsoft would restrict WP8 (its turnaround bid) to a single OEM, investors had initially hoped Nokia would enjoy exclusivity for at least a few months. The CEO had the following to say during the above-mentioned interview:
So, anyone can call their devices 'Windows Phone.' So, we could call our devices 'Windows Phone.' But what we did was we established the 'Lumia' name for this family of products, because Lumia does signify that we've been able to go a step further than the standard spec with Windows Phone devices. If you look at competitive devices -- you know, standard hardware platform, standard implementation of the software and everything -- what we've been able to do with the Lumia products is go a big step beyond, whether it is the optical image stabilization, wireless charging, navigation capability, City Lens. Those are all examples of capabilities that we have above and beyond Windows Phone.
The CEO also emphasized the importance of the U.S. market and how it affected the rest of the world. We believe Nokia is on the right path due to its focus on smartphones in the U.S. A lot still depends on consumer reaction to WP8 and Windows 8. As WP8 will have a plus point of being part of a broader ecosystem, success of Windows 8 will be the key to the survival of this ecosystem.
The recent Samsung vs. Apple (AAPL) trail has significantly increased the demand and worth of patents in the industry. We had previously valued Nokia's patent per share value at $2.30. In the post-verdict world, we believe $2.30 is a very conservative figure. The stock is trading at $2.70, on a forward P/E of 9 times. The argument above suggests that Lumia would be available on the three largest carriers in U.S., which have a combined market share of approximately 80%. This makes us more optimistic about Lumia's sales and its success. Therefore, we maintain our buy rating on Nokia, and believe that the stock will cross $3 on positive expectations from Windows 8 and WP8 on Oct. 29.