Brutal Competition In The Smartphone Space - Are There Any Winners?

| About: Nokia Corporation (NOK)

On Tuesday Nokia (NYSE:NOK) announced that its cutting edge new smartphone, the Lumia 920, would cost $100 with a two-year contract on AT&T. The twist however is that AT&T is also giving as a bonus (meaning free) the plate that charges the phone. So for only $100, not only do you get a cutting edge phone, you also get a cutting edge charger.

There have been rumors that Microsoft is paying a portion of the carriers' subsidy to get Windows 8 phones to sell. Even if true, on the one hand it can afford to do so and on the other, it has to make a dent in the smartphone market right here and right now, and the Nokia Lumia 920 is the phone to do it with.

AT&T also wants the Lumia 920 to be a success. Last month the company announced that it activated 4.7 million iPhones, but only 18% were new subscribers. Granted the quarter was in the middle of the iPhone 5 launch, but having the Lumia 920 as an offering at such a low price, might just persuade a lot of more new subscribers to jump on the AT&T ship. In any case, it can't hurt.

Microsoft is not that desperate to win the smartphone market war, because its survival doesn't depend on it. However it is quite humiliating to see Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) take all the market share. With just 1% of the smartphone market, Windows 8 needs a phone to make its mark in the smartphone space and the best time to do it is now and the phone to do it with is the Lumia 920.

On the other hand, Nokia is very desperate to penetrate the market. It lost a lot of momentum when the Windows 8 platform was announced and many people held off from buying the Lumia 900, which ran on Windows 7 that was not compatible with Windows 8. So Nokia needs a break and the Lumia 920 will probably be it.

But the question on everyone's minds is, will people buy the Lumia 920 or not?

I think they will. Not only because the price is right, but the Lumia 920 is targeted at savvy upscale smartphone consumers, who want that little extra tech in their phones, not to mention the great camera the Lumia 920 comes with. And guess what, many of those are iPhone users, or intend to buy an iPhone. At these prices, many might be persuaded to change camps.

The aggressive pricing is sure to sway consumers, probably even consumers who never intended to purchase a Lumia 920 to begin with. For example, at these prices, Nokia will probably register sales to people who were going to buy a lower end phone, but changed their minds with the lower price. I mean if you can get the Lumia 920 for the price of something far more inferior, why not get the Lumia? I would.

The new Windows 8 platform, although not yet proven in the market, is surly to sway long time Microsoft followers (yes Microsoft still has them, they are out there). And if they have to get their hands on a Lumia 920 for $100 with a free cutting edge charger, to get their hands on Windows 8, then the Lumia 920 it is.

The other question is, what might this mean for Apple? Competition fatigue and margin squeeze if you ask me.

Even if Apple has the best product on the market (and it does), over the long run, aggressive pricing and cutthroat competition, both at the price end as well as the technology side of things, will sooner or later eat into those high margins Apple has. It's unavoidable and it's the nature of things. Maybe not this quarter or even the next quarter, but over the longer run, it's unavoidable.

One example of this is Monday's IDC announcement. Even though Apple has sold a lot of tablets, and more than it did a year ago, IDC reported Monday that Apple's share of the tablet market fell to 50% from 60% year-over-year for Q3. Is there anyone who thinks that this trend will not continue?

And if this has happened in tablets, why can't it also happen in the smartphone space? The answer is it can and it will. And if you ask me, things are just getting started.

On top of all that, Microsoft (NASDAQ:MSFT) has just begun shipping its tablet the Surface, and Amazon (NASDAQ:AMZN) just got started with the Kindle. Anyway you slice it and dice it, it only means more competition and margin erosion for Apple over the long term. Especially when companies like Amazon and Google don't even care to make a profit.

And the winner is ….

If there is one winner from all this it is defiantly the consumer. I would also through in productivity and the economy, but who cares.

I also think Nokia will win big time. To begin with, when you have nothing, you have nothing to loose. Nokia only stands to gain from all this because it is starting at the bottom of the pit. In market oriented terms, Nokia's current state of affairs is limit down. It can only go up, unless it makes big-time blunders, and I have not noticed any as of yet.

Did I forget anyone? Oh yea, there is this other company call Research In Motion (RIMM), that is coming out with a fantastic phone that I like, but we'll get to that in the next quarter.

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.