Nokia Rings In The Holiday Season With Strong Lumia Demand

| About: Nokia Corporation (NOK)
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Nokia’s (NYSE:NOK) launch of Lumia Windows Phone 8 smartphones this holiday season seems to be off to a flying start. A number of reports have come out in the past few days detailing the high demand for the newly launched flagship, the Lumia 920, in the U.S. and Europe. TheNextWeb, for example, reported that the Lumia 920 was out of stock with two-week shipping times at Amazon and that only the white model was in stock at AT&T, Nokia’s exclusive partner for its flagship smartphone. ((Lumia 920 Sells out, TheNextWeb, November 21st, 2012)) Another report claimed that the Lumia 920 was selling very well in Europe as well. In Germany, particularly, many of Nokia’s retail partners have been experiencing Lumia sell-outs since the device became available earlier this month.

As a result of the initial good news following the Lumia launch, Nokia’s stock has risen almost 25% in the past week. While the sell-outs are a good indicator of the pent-up demand that Nokia and Microsoft have managed to create prior to the Lumia launch and is in line with our long-term view of the company, investors should be careful not to read too much into the news for we have no idea what the actual sales number are. Further, the coming months will be very important for Lumia since Nokia will have to work hard to ensure that the demand doesn’t fizzle out post the initial euphoria in order to stage a turnaround in its smartphone business. However, we believe that even a small improvement in Nokia’s handset business, together with its ongoing turnaround in the wireless infrastructure joint venture with Siemens, could add much more value to the company. We maintain our $4.50 price estimate for Nokia, about 35% ahead of the current market price.

Nokia banks on strong carrier partnerships

Nokia’s strong start to its latest Lumia launch, especially in the U.S., is a good launchpad for the company to build it into a bigger success. The U.S. smartphone market is extremely crucial for handset makers since success here generally translates into positive consumer sentiment in other markets. However, Nokia has traditionally lagged rivals in this very important smartphone market due to a lack of strong carrier relationships. This time however, the company has aimed to set the record straight by launching customized variants of the Lumia with multiple U.S. carriers – a move that allows it get the most marketing dollars behind the Lumia brand.

AT&T, for example, which is backing the Lumia to the hilt and is the only carrier to have the high-end Lumia 9xx, could use its past iPhone experience to prove an able ally in this quest to create a third mobile ecosystem. The carrier had earlier put a lot of marketing weight behind the Lumia 900 launch, affording the phone a “hero” status at its stores and making it the exclusive free phone for all AT&T employees to generate awareness. The Lumia therefore not only benefited from a greater marketing push of its founding partners but also one of the country’s biggest national carriers. This ensured that the Lumia 900 was among the top three best-selling handsets at AT&T until July, a period of four months since launch.

WP8 has essential ingredients for success

Overall, the Lumia has seen decent traction build up with carrier support in the U.S. and China helping Nokia sell about 11 million units in all, with sales doubling in the first three quarters since launch late last year. However, where carrier partnerships have not been hard to come by, getting people to warm up to the Windows ecosystem has proved increasingly tough considering how well-entrenched Android and iOS have become as mobile ecosystems. The iTunes store and Google Play boast close to 700k apps respectively while there are only about 120K available in the Windows Phone Marketplace.

This is where WP8 offers both Nokia and Microsoft their best chance to find a place in the growing mobile market. While building Windows 8 and WP8, Microsoft ensured that both shared the same kernel and therefore inherited the same rich feature set that has made Windows a household name in the PC industry. This has helped integrate the two platforms closely, thereby making apps developed for either platform easier to port. Having a huge user base for its Windows PC platform will therefore help Microsoft generate significant support for the new integrated Windows8/WP8 user experience, from both developers and users alike, thereby driving the sales of Windows Phones in general and the Lumia in particular.