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  • The Nokia Report 14 comments
    May 9, 2012 1:22 AM | about stocks: NOK, MSFT, AAPL, GOOG, BBRY

    THE NOKIA REPORT

    I started writing this "report" on April 10th, 2012. I originally had a bunch of links attached to support what I was saying but I figure you can just look up everything on your own.

    Today Nokia fell 16% on the NYSE to close at $4.24 a share. This huge drop came after Nokia lowered their 1st quarter estimates and out look for their 2nd quarter. This was due to a sharper fall in sales of their feature phones running on Symbian in developing parts of the world, which recently have made up the majority of profits for Nokia. I understand this news would and should send Nokia shares down, however I'm amazed at the out right negativity analysts and talking heads have for this company. They seem to relay the good news with doubt and exaggerate the bad news. Also, who was surprised Nokia sold fewer Symbian phones? I can tell you how many Symbian phones Nokia will sell after 4 years… ZERO!

    Nokia is no longer working on software development for Symbian. They outsourced that job to a company called Accenture. Nokia will have nothing to do with the Symbian platform by 2016.

    What really amazes me is how I can't find anyone who sees what I see; that Nokia will be huge in the not so distant future. How it seems more unlikely to fail then anyone seems to give them credit. This is the reason I'm writing this report to shed light on things to come.

    Where we were not so long ago

    Do people really have that short of a memory? It was not so long ago most people didn't own a cell phone, nobody knew what texting was and if you did have a phone it was to make phone calls end of function.

    Microsoft used to sit on top of the mountain. Its software was in everyone's home and office and every few years it would release another version of Windows and life was good. Nokia made low cost handsets running Symbian. They upgraded here and there and the phones were good but simple so if someone just wanted to make a phone call, Nokia was your choice.

    In 2002 Apple traded for a little over $7 a share with at least one analyst (Arne Alsin) saying it was done. As dominant as Apple is now people seem to think that dominance will last forever. Not so long ago no one knew what Google or Facebook was.

    Then…

    In the U.S. cell phones were becoming more abundant. The cheap flip phones started to become popular giving rise to company's like Nokia which still sells more mobile phones in the world then anyone. Later came the Blackberry's around 2003 and they were the greatest thing. People loved the BBM and the little keyboards (many people today still can't leave their Blackberry's). Everything changed in 2007 when Apple came out with the iPhone, the first true smart phone with the touch screen. Under two years later a smart phone competitor emerged. HTC released a phone running Android. Through these last 5 or so years we have seen an army of Android devices released by Acer, HTC, LG, Motorola, Samsung and Sony. With the exclusion of Blackberry we are seeing the smart phone war come down to iPhone and whoever is running Android. But it's not about the phone it's about the ecosystem.

    The start of an Ecosystem

    We used to shop in malls, buy CD's from music stores, watch movies in theatres or buy the DVD. Computers were for surfing on the web or office like tasks and e-mail. You watched T.V. on your T.V. You played video games on your Nintendo. Your phone was for making calls. You took pictures with your camera. Even though you still may do these things today, the point is that things were once separate.

    Then Apple changed everything.

    Apple was struggling to sell computers, Microsoft would sell the software and companies like Dell would sell the hardware. Although the people at Apple were making some great strides, nobody wanted to switch to an Apple OS. But then technology started getting better and smaller. The Internet started to grow by leaps and bounds. Napster happened. Apple released the iPod in 2001. This little device became the new Sony walkman. The iPod and MP3 players changed the music industry forever. How would you download this music to your iPod? Well Apple worked out a deal with the music industry so they could at least make money off downloads instead of people getting it for free and they created iTunes. Apple started to integrate things. When they released the iPhone that became your iPod. Maybe you bought a Mac and your iPhone and iPod would all kind of work together. Then we would get the iPad and everything works together. We will buy apps from our app store which only works on our Apple products and store our info in the iCloud. Then when Apple releases iTV we will have to get that because it works so well with our other Apples stuff. Apple makes their own software and hardware. You need an iPhone charger to charge your iPhone.

    Do you see what is happening?

    While not closed yet Apple is creating an ecosystem. Something that Google's Android is not doing and could not do now because they are too splintered.

    I'm not saying what Apple is doing is bad, in fact it's genius and probably very convenient for the user.

    Think of this, when you lost your iPod, did you loose your music? No; you bought a new iPod and all your music was held in iTunes. When all your info is in the iCloud and your computer brakes, which computer will you get next? An HP with Windows software which does not have any of your information on there and you have to start a new? Or would you get another Mac where you can pick up where you left off and everything is readily available. You need a new phone; which one will you get? A phone that has all your apps, music and contacts on it or some other phone?

    As of right now Apple is the only company in position to create this ecosystem. As the iCloud takes off and iTV emerges and they start to sync all their devices to work hand and hand with one another they will begin to close this ecosystem. Which I think they will become successful at. But everyone has a competitor. Coke has its Pepsi, UPS has its FedEx, and Apple will have its archenemy… Microsoft.

    What is Microsoft doing?

    It's the tech world! No other sector moves this fast, what was new today is old tomorrow. You innovate or die. Microsoft became stagnate and complacent while Steve Jobs started getting creative with Apple. People started getting iPhones (mini computers) and iPads instead of buying computers and if they did buy a computer it was a Mac. Microsoft saw this happening and while they could sit back on their 45 billion and watch themselves whither away they decided to act. The time is now!

    Microsoft still sells a lot of software, Windows still runs in a lot of homes and most offices. They started to buy things, create things and copy Apple. They created Zune to compete with iTunes. They created Bing to compete with Google. They own the Xbox console and Xbox live. But really the key is to get that little computer that you carry everywhere you go to tie everything together. Microsoft saw some success when it started in on pocket PCs and launched Windows Mobile but in the tech world lack of innovation will kill you and the iPhone did just that. Microsoft developers were old tired and boring. They lacked creativity so Microsoft needed to start new in order to compete. They got some new blood and new ideas and in 2010 started Windows Phone.

    Microsoft could start making the phones themselves but they are software people not hardware people and to make a phone to compete with Apple on all levels would take many years. Years they can not afford to loose as the Apple ecosystem slowly closes so they asked for takers of their new phone software and in a world of iOS and Android nobody really wanted to champion the software. They got some companies like Dell, LG, Samsung, and HTC. But Windows would be treated secondary to Android. Microsoft knew they needed to either create a hardware division or find someone who will make the best phone on the market for them. As luck would have it one of the best hardware maker and largest cell phone maker was available and desperate. Nokia slowly dying; stuck in an old operating system found the perfect partner in Microsoft. Both companies in need of one another; Nokia became Microsoft's unofficial hardware arm and they partnered in Feb 2011.

    Who is Nokia?

    Nokia is the largest cell phone maker in the world. They have a reputation of making solid reliable cell phones. They are one of the 25 most recognizable companies in the world. While they have virtually no presence in the U.S. the brand is quite common in the rest of the world. Nokia is original and innovative. They have a large patent portfolio (in fact Apple pays Nokia royalties for every iPhone they sell). Minus debt they still have about 6 billion in cash.

    Nokia's problem is they stayed with their homemade Symbian operating system way too long. They just kept trying to improve it instead of abandoning it all together. When more advanced OS's came out they just went cheaper and sold "throw away phones" at discount to the masses. This worked for awhile but now these "smarter" phones are becoming cheaper as well and developing countries are not satisfied with a feature phone anymore they want all the functions of a true smart phone.

    Nokia knew they needed a change and created a new OS called Meego but then Microsoft came along and made them an offer they couldn't refuse.

    Progress

    So in February 2011 Nokia and Microsoft created a partnership. They worked side by side and in less then a year; starting from scratch they had a smart phone running Windows Phone under the Lumia title! There are 4 groups of phones under this title the 600, 700, 800, and 900. The Lumia 600 being the least expensive and advanced "starter phone" and the Lumia 900 being the top tier of this line. In November 2011 the Lumia 800 started selling in France, Germany, Italy, the Netherlands, Spain and the UK. By the end of the year they also started selling the Lumia 710 in Hong Kong, India, Russia, Singapore, and Taiwan. Even in those limited markets, selling only their mid range phones, on a new platform and having a little over a month to sell them, Nokia still sold over a million Lumia phones.

    Nokia's first full quarter of Lumia phones on the market just ended Jan 1st to March 31st. During that time they also entered the U.S. with the Lumia 710 selling on T-mobile starting mid January 2012. Although Nokia's earnings will not be reported for another week they have said they have sold over 2 million Lumia phones in that quarter and have seen sequential grow month by month of the Lumia line. Remember this is still without the flagship phone, the Lumia 900 being launched.

    Recently less then a week ago Nokia has launched the Lumia 900 in the U.S. under AT&T and sales so far look good. They also launched the 900 in Canada and launched the Lumia 800c in China with people waiting in lines for it. Nokia has also stated the Lumia 900 will go on sale in Europe at the end of this month. Only time will tell the success of the Lumia phones but it is progress.

    It's Not About Phones Anyway. It's About Ecosystems

    That's right! Microsoft only cares about phones because they are part of the ecosystem and I would say easily the biggest part of the ecosystem. No other device is so personal to the user and it's the only one they carry around everywhere they go. It connects you to that ecosystem 24 hours a day.

    Microsoft is setting up the playing field. They are in the process of creating a tablet which their hardware arm (Nokia) is making. The Lumia line of phones is just a step into where they are going.

    I've heard the reviews of the Lumia 900, how the iPhone and top Android devices still trump it. That it's only a single core processer and Windows Market doesn't have the apps and blah blah blah… Hey! They are not idiots. They are not trying to show people the Lumia 900 and say we are better then everyone. That is not what they are doing.

    A top of the line "my phones better then your phone" does not come over night. It takes time to develop and test and they are doing that. But unlike when the iPhone came out, Windows Phone will have established competition. So Microsoft needs to build some momentum before it comes out with its new amazing phone. The one that will steal people away from Apple and their ecosystem and bring them into the Windows ecosystem.

    First they need to establish a beach head, introduce people to Windows Phone and gain market share. That is what the Lumia line is for. That is why it's priced so aggressively or why they are giving you $100 even if your phone doesn't have a bug. They do not care about profit right now. It's the same reason Amazon Sells Kindle Fires at a loss because they know when you have the Fire you will buy more Amazon things.

    Second they need to get their app count up. The only way to do this is to have market share. If people are using your system the developers come to you. They are also paying the top apps to get them on their market. Windows Market is growing fast at over 300 apps a day. They have over 80,000 apps so far and are on pace to surpass 100,000 apps by end of May or early June. By comparison Apple and Android have over 650,000 and 500,000 apps respectfully.

    Later this year Microsoft will release Windows 8. They say it will be the best Windows update they have ever had with great integration with Windows Phone (ecosystem). It will also run on their tablets which should be out about the same time and a new Nokia Windows Phone will come out. That is what Lumia is; it's prep to the next Windows 8 phone.

    If Apple and Android have all the market share how will Nokia and Windows Phone gain traction?

    So I've heard many analysts say things like "Apple and Android have the market wrapped up with over 85% of smart phones being one or the other". That has to be one of the dumbest arguments I've heard.

    A month ago if you went into any mobile phone store or electronics dept chances are all you would see are Android and iPhones.

    Let me put it this way. Suppose in a town all the grocery stores sold nothing but apples and oranges. So I took a survey of all the people who ate fruit to find out which fruit they ate and to my surprise everyone ate apples or oranges. WOW! So when a new vendor comes to town with his bananas should I tell him "sorry buddy this is an apple and oranges kind of town nobody's going to want your stuff". Of course not it's absurd.

    The thing is most carriers want a 3rd platform. Also if Apple in the beginning was such a superior phone; how did Android get such a large market share? Android I believe became popular for 2 reasons. 1.) Some people did not want to pay the high price for the iPhone. 2.) People wanted something different then everyone else.

    However while people still think the iPhone is great I've heard a lot of complaints about various Android phones. Such as it's not as smooth or it's buggy. Until recently Android phones did not compete with Apple's technology. People have said that Android just seems like a bootleg iPhone or iClone. Also Android does not carry the same social status as the iPhone.

    So introduce Windows Phone particularly the Nokia because it is the best quality of Windows Phone. The user interface looks new, it looks "sexy". It just doesn't have the look of Apple or Android and for that alone I know the phone will sell. Nokia / Windows Phone do not have to steal market share from Apple. They just need to steal it from Android and with the low prices and different design they will.

    I've left out Blackberry from this argument. Blackberry is virtually dead. The only people in the U.S. who are still buying Blackberry are the people who have always had it and they are slowly leaving it. New users are not choosing Blackberry and Research In Motion is so dysfunctional and slow that I don't think they will catch up.

    Failure is not an option

    For Nokia especially the stakes could not be higher. Their old way of life is over (symbian) and the new (windows phone) has just started. Nokia is basically all in. If Windows phone fails or the partnership with Microsoft ends what will Nokia do? Become another Android flunky? Try to start up Meego?

    Basically if the partnership with Microsoft ends, Nokia's hope of being a global leader in anything would dissipate and they would have to scale down tremendously, maybe even try and sell parts of the company.

    But what these negative analysts fail to mention is that Nokia doesn't matter. It's all about Microsoft's ability to succeed.

    I don't care if the rest of the world stopped buying Symbian phones altogether. If Nokia reported that not one single Symbian phone sold in the 1st quarter and they must lower their outlook by 20%; that wouldn't bother me. However if they said "we sold 5 times as many Symbian phones then expected and have decided to switch to the Android platform" I would be very concerned.

    Ecosystem Phone

    Like I said it's not really about the phones it's about the ecosystem, the phones are just the key to the ecosystem. This is why Android phones will loose market share in the future. Phones running Android will become the new feature phone of today, for people who just want a phone but not the whole experience.

    What experience? The one you will get with Apple and Microsoft's ecosystems.

    Let's say we reach a point where Apple, Android, and Windows Phone are roughly all technologically equal in their respective "top" phones (after all there is a limit to how "fine" you can make a screen or camera before it does not really matter). Let's say the prices are all about the same. Who will have an advantage in this scenario?

    Well if a phone can flawlessly interact with my home computer, TV, tablet, and laptop; I would say that would be the phone I want to have. Apple's phone will be able to do this. Windows Phone will be able to do this. But unless Android starts making an OS for your home computer; they will be left in the cold.

    Why Microsoft will guarantee Nokia's success

    Some companies try to branch off and get into another industry every now and then. Sometimes they succeed sometimes they fail. This is not what Microsoft is doing. The cell phone industry has become the computer industry. Microsoft can't just quit and say "we'll just go back to what we do best and make software". Sure they could keep making more and more "Windows" for your PC's but Apple will slowly start dominating the PC world and eventually it will be as strange to find an office running Windows as it was to see an office running iOS 5 years ago.

    Microsoft knows this; they know they MUST get into the smart phone and tablet game. That's why they didn't give up when Windows Mobile failed.

    Time is a factor. Everyday more people buy an iPhone; everyday more people are inclined to buy a Mac. Getting a top phone business started takes a lot of time and is costly. Buying out an already established phone business could be quicker or slower depending on how messy the takeover is and it would certainly be costly. But partnering with an established phone maker? Well it is very quick and cheap. You loose out on half the profits but only share half the burden. Besides let Nokia keep the cell phone profits, Microsoft will keep the OS Windows profits. I believe once the Microsoft ecosystem is a success and established they will just buy out Nokia anyway.

    So MS has a partnership with Nokia. With all the benefits Nokia gives them it is the ideal company. They are not pulling out. They are not switching partners. They are all in with Nokia. They have put in too much time and money with Nokia to try and find some other way to get great phones to the market. Even if Nokia starts hemorrhaging money from its other businesses, Microsoft will carry them or just buy them out. Microsoft needs Nokia to succeed and will spend their money and their resources to make it happen. Microsoft has 45 billion in cash and will spend it to make it happen.

    Advantage… Windows Phone!

    Steve Jobs is dead. Will Apple be able to keep coming out with the latest and greatest? Who knows but let's look at what Microsoft and Nokia will bring to the table.

    1. Nokia has worldwide recognition and top end experience in selling cell phones.

    2. Nokia has the 41 mega pixel pureview technology

    3. Nokia has its own navigation system Nevteq

    4. Microsoft Windows is still the most widely used OS for homes and businesses.

    5. Microsoft owns Skype. (Who knows how they will use this)

    6. Microsoft owns the Xbox, Xbox Live and Kinect

    7. Microsoft has its own search engine; Bing

    8. Microsoft has Windows Office

    9. Microsoft has 45 billion to throw around

    10. Between the two they both have a large R&D and own a lot of patents.

    I'm not saying other competitors don't have some of these things as well or that they are deal breakers; I'm just pointing out these weapons or advantages in which Microsoft and Nokia can use toward their success.

    What the Naysayer's are saying

    If your opinion is that you don't like Windows Phone or the Lumia 900; that's fine. If you think Nokia will fail; that is okay. But if your "reasons" are half truths, twisted facts meant to deceive and sometimes just out right lies then really what is the point? Who do you work for?

    Let me lay out all the "reasons" why Nokia is in trouble that I've heard pointed out by analysts and explain why it's deceiving or does not matter. Also when I talk about Windows Phone I'm talking about the phones from Nokia because I consider that the real start of the Windows Phone operating system.

    Lumia has failed- Well it's an opinion. But Lumia launched late last year and the top end Lumia 900 just launched last week. So really what are you talking about? It's too early to say anything.

    Windows is loosing market share- Do analysts think Windows Mobile and Windows Phone are the same thing? Yeah they are both phones OS made by the same company but Windows Phone is new! Windows Mobile and Windows Phone are not compatible operating systems. It does not have market share to loose.

    Not enough apps- True! Windows Market Place does not have the app count of Apple or Android. This is not an unsolvable problem. The over all number of apps is misleading when you think there are thousands of "body sound effect" apps. It's the quality of apps that is important. But by year's end Windows will have more then enough apps that people will stop bringing it up as a flaw.

    Only sold 2 million phones!- Analysts and bloggers like to point out that the Lumia line only sold 2 million phones in the 1st quarter of 2012; like it's a bad thing. "In comparison Apple sold over 30 million phones", "Apple sold that many phones in the first weekend", "they are in trouble". Again what are you talking about? When the iPhone first came out it didn't even sell 1 million phones in its 1st quarter. Of course this is not a proper comparison either because the iPhone was selling for much more then Nokia is selling the Lumia. Then again there was nothing like the iPhone on the market when they came out while Nokia has competition from Apple and Android. Then again Apple didn't sell in all markets in its debut. But then again those Lumia numbers do not include the 900 which just launched. So the point is stop trying to compare Apples and Lumias. Two million considering ALL factors is actually pretty good.

    Nokia bug- Recently there have been reports of the Lumia 900 phone having connectivity issues. These reports make it sound like the new Nokia phones have failed and all need to be replaced. But in reality the connectivity problems only affected a minority of the phones. The problem was easily fixed by following some simple steps however most people can't follow simple steps so they created an update that would do the steps for you and for the even lazier group of people they allowed you to replace your phone with one that was already updated. But because of all the over hyped press about it Nokia even offered $100 to show how much they cared for the customers. These problems happen with phones all the time, they just don't always make such noise in the press. Remember the iPhones dropped call problem?

    Mixed reviews- True the Lumia 900 has gotten mixed reviews. Analysts like to point out that the "Lumia has gotten mixed reviews at best". Mixed? Yes. People who compare it to the iPhone give it sub par reviews but people who actually have the phone give it rave reviews.

    Apple Killer- Many reviews and analysts have pointed out that the Lumia 900 is no iPhone killer. Well last time I checked there were a lot of Android devices that are nowhere near the iPhone and they seem to be doing pretty well.

    The Lumia 900 is not supposed to be an iPhone killer. The Lumia 900 is an introduction to Windows Phone. I think the fact people try to compare it to the iPhone speaks highly of the Lumias quality.

    Windows 8 is not ready yet so why put all the best stuff in an OS (Windows 7.5) that will be out in 6 months? The Nokia Windows 8 phone will be the real competitor to Apple.

    Apple and Android dominance- I already explained why pointing out the market share size of these two platforms is ridiculous when talking about Windows Phone.

    How do you say RIMM in Finnish? Nokia! - About the only things RIMM and Nokia have in common are they both sell phones and both have lost their dominance. Nokia is on a new path, RIMM is still trying to figure out what they are going to do (No BB10 will not save them). Anyone who sees the downfall of RIMM and assumes Nokia is in the same boat clearly does not know what they are talking about.

    Easter Sunday! - Much has been made over the "botched" launch of the Lumia 900. I suppose it's possible that the execs at Nokia & Microsoft as well as the advertising firm handling the launch just didn't realize it was Easter Sunday.

    However I have a more plausible explanation for the Easter Sunday launch. First, I think they wanted to get these phones out as soon as possible. I think the earliest possible timeframe fell around the Easter Sunday weekend. This is supported by the reports about AT&T stores not having many of the new phones in stock.

    Second, why Easter Sunday? Why any Sunday? Why not Friday or Saturday or even push it up to Monday. Well if there is no such thing as bad publicity then it's brilliant. Think of all the extra press they received because of this "botched" launch. Do you honestly think anyone said "I was going to buy a Lumia 900, but the store was closed. I guess I'll buy a Droid Razr instead."

    Besides I don't think they expected long lines to form outside AT&T stores and even if they did, they didn't have a large enough supply ready to fill that demand.

    Nokia more then phones

    All I have been discussing is the Devices and Services part of Nokia. Nokia can be divided into 3 parts. Devices and Services (cell phones), Location and commerce (Navteq mapping) and the Nokia-Siemens Network. The Nokia-Siemens Network is just starting to bare fruit. The Navteq mapping should prove helpful in the future and Stephan Elop is cutting the fat off this old mobile giant, making it more efficient. All these things should be positive to Nokias bottom line going forward.

    Things take time. There is a plan.

    I wrote a little about this but I just wanted to drive home the point of what is going on. I've heard complaints about the Pureview technology running on Symbian. I've heard people ask why Windows Phone does not have Skype built in.

    I don't know if people just think things happen immediately. Starting a new operating system takes time. Adding things to an already made software takes time. You just can't throw things in and hope for the best. First you have to create it. Then you have to test it and work out the bugs. Then you need to manufacture it. Then you need to release it and get feed back on it and make it better. Making sure everything works right is important. Imagine if someone released a phone that would crash 3 weeks on the market. The damage would be incredible. The refunds and recalls would be costly but the damage to the brand would be incalculable.

    Microsoft already had the Windows 7.5 made when they acquired Skype, to add it would set them back. Windows 7.5 was already completed when Nokia got it. Nokia already had the N9 design ready. Instead of Nokia making a new phone for Windows Phone they took the N9 design and threw Windows Phone in there. The Pureview technology was originally being made for Symbian. To try and incorporate it into Windows Phone would take time. Windows 8 is not completed yet.

    Don't you see these two companies were working separately and just recently partnered? Instead of waiting another year or more to have a perfect phone they needed to put something out now. This also works to their advantage. What good would an awesome Windows Phone be without apps? How hard would it be to get people to buy the new Windows Phone if no one even knew what it was?

    The plan is… First you introduce some new Windows Phones. All the advertising for this group of WP's will pay dividends for the next group. People need to be introduced to it. People need to see it on store shelves. Plus you get all the feed back from people who are using it. Second you get into all the different markets around the world. You start to develop relationships with the people and all the different carriers. It will be easier to pitch your Windows Phones that have been on the market for over a year then trying to pitch a brand new OS. Last you get your app count up to par. You need phones on the market to do this.

    Nokia will be able to be more involved in the process of Windows 8 instead of just being given a finished Windows 7. Nokia can make hardware designed for Windows Phone instead of using something they already had. Nokia was split before with people working on Symbian, Meego, and Windows Phone. Stephen Elop has refocused the talent. Now everything is focused on just Windows Phone.

    Leadership

    One of the main reasons when I thought RIMM would fall below $20 a share when it was trading at $27 (only to see it fall to $14 a few months later) was because of leadership or in RIMMs case a lack of leadership. But I have read a lot about Stephen Elop and well I like him. Listen to him speak on YouTube. I wouldn't call him a genius but he is the right man for the job. He is very smart, calls it like it is and is truly passionate about Nokia. He is a tech guy; he sees great things and is very optimistic about Nokia. I don't think he would be saying that if he didn't see the potential himself. People give him flak about the "Burning Platform" memo; why? To say anything otherwise would make me think he was delusional. He knew Symbian would be the death of Nokia. What else could you say? Look at all he has done to turn that sinking ship around at the pace he is working. Look at the hard decisions he's had to make. Look at the progress. What else could anyone have done better? If Stephen Elop was not the CEO of Nokia I would have serious doubts about their future success. Also don't forget Nokia's shares were dropping before Elop took over, that's why they brought him in.

    The Future

    Nobody knows what the future holds so of course my confidence in Nokia comes from a few assumptions and educated guesses I'm making about Microsoft and Nokia. Who knows how companies like Google and Facebook will effect the market. There is always the chance a CEO will do something crazy which doesn't seem to make any sense (think Netflix and the Qwikster idea).

    I'll go over all my assumptions

    1. Microsoft is trying to build an ecosystem. Well I've heard Stephen Elop as well as Steve Ballmer talk about ecosystems and that this is a battle of ecosystems.

    2. Microsoft or Nokia do not end their partnership. Maybe egos get in the way, maybe someone decides to take their company in another direction. I do know it would be very costly if not suicidal for Nokia to change directions now. Maybe a year ago Nokia could have gone with Android but then we would be talking about a different animal. I think Nokia would rather be the best Windows Phone maker then the 2nd or 3rd best Android phone maker. As far as Microsoft switching? Well ultimately money talks and I suppose it's possible for Samsung or HTC to make Microsoft an offer they can't pass up. Maybe Amazon will team up with Microsoft with some other crazy plan. But as for right now all roads lead through Nokia. Microsoft has already poured a ton of money in their relationship and Stephen Elop used to be a Microsoft exec so there is that. For Microsoft to try and find as good a hardware maker as Nokia and get to where they are today would be costly and time consuming.

    3. Windows Phone will be able to compete with the top phones (iPhone) and be able to get their phones to market. Execution is key. Can they get their phones out in a timely manner? I like the pace I'm seeing so far. Will their phone be able to compete? Well the Lumia 900 is lacking over all but I've stated that is not going to be their best phone but it's the introduction phone. They are waiting for Windows 8. It's not an awful phone so that's encouraging. The UI and OS seem to be given high praise even by non-window phone fans. Windows Phone can offer things Apple and Android can not like Windows Office. They know what the iPhone already has all they have to do is at least match it technology wise. If they can surpass it and spend the money to market it, they will have a hit.

    4. Microsoft wants to beat Apple. We know Android and Apple are in competition. We know Apple and Nokia are in competition. But does Microsoft "feel" they are competing against Apple? Do they want to beat Apple? I think they are.

    Evil Empire

    The only real fear or unknown I have is Microsoft. They are not that needy yet. They can fail and fail again and still be alright. Even though it would be costly they could pull out of the deal with Nokia. Some not so bright execs over there might give up too soon. Microsoft does not seem like one to give up though. When the Xbox came out it was not so hot against Play Station, now look at it. Zune was a failure but they still have it around and it may start paying off in how it will help its Windows Phones. Bing you can say is draining their money but they keep investing in it. Windows Mobile failed so they are trying again in Windows Phone. Really I can't think of anything Microsoft has ever just given up at.

    Microsoft may not realize how important Nokia is to Windows Phone. I think their bigger picture is just the ecosystem. Nokia maybe viewed as just another handset maker. If Samsung or HTC suddenly shift their focus to Windows Phone it could hurt Nokia or things could change on how Microsoft values Nokia.

    Let's imagine a world where Microsoft's ecosystem has taken off and Windows Phone is the dominate platform. Right now Nokia needs Windows Phone to succeed and Microsoft needs Nokia to succeed. But once Windows Phone has succeeded what will happen to Nokia? Other players like LG, Samsung and HTC will join Microsoft's ride up. Nokia because of its deal with Microsoft has complete flexibility with Windows Phone to change or add innovation in order to distinguish themselves from the other Windows Phone makers (something Google said they could not do if they went with Android). Nokia could beat the competition head to head but what if Microsoft wanted more? What if Microsoft wanted to change the deal? Nokia is completely reliant on Microsoft. They could not go anywhere else. Nokia's competition will surely be putting pressure on Microsoft in order to get the edge on Nokia. This is my one fear of their alliance. Nokia will become too dependent on Microsoft and Microsoft could basically do whatever it wanted. But we can worry about that when we get there.

    In Summary

    I believe Microsoft is creating an ecosystem. Microsoft wants to have their PC, phones, tablets, Xbox and anything else they come out with, all tied to this ecosystem. I believe Microsoft will become successful simply because so many people already have their product (Windows for your PC). Everyone may not have a tablet or Xbox but everyone has a computer and phone. Apple has people buying Ipads and Macs because of the Iphone. Microsoft will have people buying Windows Phones because of their PCs. Microsoft will keep pouring money into Windows Phone. Windows 8 for your PC and Windows 8 for your phone will work hand and hand with one another. Microsoft may even have deals like "buy a PC get windows phone free" or something like that. If Microsoft can put out a quality product the phone will sell its self if you already own a PC running Windows. Nokia will benefit greatly from the Windows ecosystem as they will be building the best phones and tablets for this ecosystem.

    People are negative about Nokia because of the state they are in now. The loss of market share (Symbian phones) and to most people they just think Nokia is switching operating systems and starting anew. This would be the case if Nokia was making Meego phones or Android phones however Nokia is becoming apart of something that has not happened fully yet so it's hard to see. Today's smart phones have combined phones, computers, cameras, portable game consoles (gameboy) and music players into one device. Tomorrow's ecosystems will convert your home computer, tablets/ laptops, phones and televisions into one system with the info stored in the cloud. Microsoft may even beat Apple in becoming the first true ecosystem. The rate in which this all happens is debatable but it is happening.

    Sounds crazy? You'll believe it when you see it? Well who was thinking phones would be what they are today when you were looking at your pager. Remember that was not so long ago.

    Lastly I'll throw some bold numbers out there for fun.

    I say Nokia will trade for nearly $30 a share in 4 years (granted they do not get bought out first).

    - L.N.M

    Disclosure: I am long NOK.

    Themes: Tech Stocks: NOK, MSFT, AAPL, GOOG, BBRY
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Comments (14)
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  • Charles Santerre
    , contributor
    Comments (1242) | Send Message
     
    lewelyn: I enjoyed reading your article. Of course I am biased being long NOK as well. In any event it had more meat on it than the majority of "arcticles" on NOK in SA's other section. Too bad either SA editors hung on to the article too long or you did not adjust it to make it more timely, it does lose some credibility that way. Keep it up and I look forward to reading your other posts in the future.
    10 May 2012, 06:10 PM Reply Like
  • beyond dreams
    , contributor
    Comments (183) | Send Message
     
    Well done. The best recap of Nokia and the smartphone arena I have read in SA. I hope you will update this with future developments.

     

    I do however wonder if you are not being overly aggressive with your $30 share price in four years. I am long Nokia and do feel that they will survive this turmoil, but I do have my doubts about a ten fold increase in share price.

     

    I would love to be wrong and have you remind me four years down the road of this divergence in opinion, but for now I would rather be optimistic and cautious about future potential.
    11 May 2012, 07:06 PM Reply Like
  • doctordoctor
    , contributor
    Comments (48) | Send Message
     
    nokia's new 900 phone is a complete flop. must be one of the worse screens around. very fuzzy. the reviews mostly dump on the product. and this was suppose to be its great "return" strategy? a half witted phone? and thus its stock has started its plunge, again. think it has spent what good will there was. at this point msft will need to find another vendor to push its systems. samsung is an obvious choice since they make the iphone and ipad.
    11 May 2012, 07:51 PM Reply Like
  • nvn784
    , contributor
    Comments (22) | Send Message
     
    Ummm, DrDr..you need to check your stats a bit....

     

    You say the Lumia 900 is a complete flop huh??? Well then I'll just leave these right here for you...

     

    http://bit.ly/Josewf

     

    http://bit.ly/KY3VCp

     

    oh and since you mention the iPhone....

     

    http://bit.ly/Josewk

     

    I could keep posting articles and links that go completely against your comment, but I think the other commenters are ignoring the blatantly ignorant comment you posted.

     

    The author of this article is correct. I commend him for having the vision that a majority of analyst are blind to as well as the guts to say it.
    12 May 2012, 05:43 PM Reply Like
  • cksystems
    , contributor
    Comments (3) | Send Message
     
    Well said, the best I have read about Nokia.
    Great work.
    I agree with you 100%
    Thank you
    11 May 2012, 09:17 PM Reply Like
  • meyrink
    , contributor
    Comments (30) | Send Message
     
    Finally a thoughtful article about NOK focussing on the big picture. Well done!
    11 May 2012, 09:39 PM Reply Like
  • Totenham
    , contributor
    Comments (55) | Send Message
     
    In complete agreement. As I stated several months ago with only one disagreement - Nokia will be $30 in next two years.
    11 May 2012, 10:42 PM Reply Like
  • couch1971
    , contributor
    Comments (3) | Send Message
     
    llewelyn

     

    Loved the write up. Couple of things though:

     

    1: NAVTEQ is the name you mean when you say 'nevteq'. Nokia bought them a few years ago so that they could own the makers of the maps Nokia was using. NAVTEQ is now a brand name rather than a company.

     

    2: Windows8 is the key: If they successfully launch that along with WP8 then Nokia and MSFT will skyrocket.

     

    Disclaimer: I work for Nokia Location and Commerce , what was formerly known as NAVTEQ :)
    12 May 2012, 10:09 AM Reply Like
  • beyond dreams
    , contributor
    Comments (183) | Send Message
     
    Couch1971
    Since you work for Nokia what is your take on the new management and the new course set with WP??? How do you evaluate Nokia's chance of success?? I am a believer that the most important factor in success is the management and the tone set by that management and wonder how you view the new management and strategy set for the company.

     

    Loved all the comments on this thread.
    14 May 2012, 05:22 AM Reply Like
  • llewelyn
    , contributor
    Comments (19) | Send Message
     
    Author’s reply » Thanks to everyone who read this (doctordoctor did not). I originally wrote this “report” for myself fueled by frustration over all the negative false reporting I saw all over the place (Tomi’s CDB blog; Jim Cramer). I eventually decided to publish it to see if people might find some holes in my thought process.

     

    My $30 per share prediction I agree is a bit aggressive (beyond dreams). Much depends on MSFT; and they may not move with the aggressiveness NOK would like.
    $30 in 2 years (Totenham)? I think would be nearly impossible (that would be much faster then APPL ever climbed in any given 2 years). For one reason NOK will not be taking home all the profits (MSFT will be getting some) and also when Windows Phone becomes successful, Samsung and the others will start working harder for Windows Phone which will eat into NOK’s profits.

     

    I’ll have a better “feel” on Nokia’s future success by the fall. First NOK must have their Windows 8 phones out by Oct the latest (Christmas season). Second those phones must impress! The Lumia in a lot of ways was a “rush job”. If the Windows 8 phones do not impress I will have to scale back my $30 per share prediction.

     

    I do think it’s important I disclose a couple things.

     

    1.) I am not a “fanboy” of any OS (I hate that term). In fact I do not even own a cell phone. I don’t like the idea of people contacting me whenever they want. I do read a lot about them though as well as other “new” technology.
    2.) In my personal opinion I think the latest Android phones are probably the over all best phones on the market right now. What the iPhone has done well in is marketing. They have a reputation that Android does not have. It’s like Starbucks, they may not make the best coffee but it’s more of a status thing.

     

    Anyway thanks to everyone for reading and thanks couch1971; yes it was the name I meant. Also charles6767, SA wanted me to add links and update the info from April 10th, the hell with that. Glad you liked it though.
    12 May 2012, 02:11 PM Reply Like
  • aceofspadez
    , contributor
    Comments (6) | Send Message
     
    Finally someone that gets it.
    14 May 2012, 04:05 PM Reply Like
  • myviews
    , contributor
    Comments (7) | Send Message
     
    great job! i'am also long in nokia and microsoft. share the same thoughts and get frustrated over and over again when i have to read "What the Naysayer's are saying" you made your math, lots of so called analysts did not.
    15 May 2012, 02:00 PM Reply Like
  • HillbillyMermaid
    , contributor
    Comments (7) | Send Message
     
    Also in NOK and MSFT - and appreciate perspectives.
    19 May 2012, 04:26 AM Reply Like
  • theguz11
    , contributor
    Comments (2) | Send Message
     
    good job...lot of good comments
    27 May 2012, 02:33 PM Reply Like
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