What's Up Nokia? Oh Yes... Lumia

| About: Nokia Corporation (NOK)
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Everyone noticed that on Jan10th the stock price of Nokia rose to $4.45, which is an 18% hike, upon news that its Device and Services division were set to raise profits this quarter. Analysts estimate that Nokia (NYSE: NOK) will sell 4.4 million Lumia smartphone units in the 4th quarter; if the company is able to pull this off it would be a major improvement over its previous weak figure of only 2.9 million Lumia smartphones. Mobile geeks now see the Lumia as a platform that is capable of stopping the duopoly reign of Apple's iOS and Google's Android. The way things are going you can't blame them for coming to such a conclusion. Nokia was literally written off by everyone when it reached a July 2012 low of $1.63, and this very same company answered its critics with a commendable 188% comeback. Now the question is how safe are Apple, Google (NASDAQ:GOOG), and Research In Motion (now known as BlackBerry) (NASDAQ: RIMM)?

What everyone has been up to so far

Apple (NASDAQ: AAPL) literally benchmarked the quality consumers expect from smartphones the day they launched their revolutionary iPhone. The iPhone alone is a $500 billion empire; in 2012 Apple sold 125 million iPhone units to raise $80 billion in revenue. Apple has also worked out a way to integrate other products amongst each other; for example, iTunes is integrated into almost every iDevice. This is just a rough history and reminder of what Nokia is up against.

Google's Android is a product that smartphone manufactures literally beg on their knees for when it comes to negotiating a deal with Google for a tie-up. Recent reports show that Apple and Google dominate the smartphone operating system market with 35% and 54%, respectively. Samsung's Android phones play a major part in contributing to Android's dominance.

At the bottom of the pile are Microsoft's Windows Phone, Research in Motion's BlackBerry, and Nokia's Symbian devices; all of these together contribute to roughly 11% share in the smartphone market. For Nokia to weasel its way into the top they have to knock out "on the bubble" competitors like Research in Motion. Keeping that in mind, let's compare these two former giants.

Nokia Lumia vs BlackBerry 10

Nokia was literally running behind RIM with a knife throughout 2012 claiming patent infringement. RIM in the end caved in, December of last year RIM settled the case for $65 million and has promised regular royalty payments for the use of their patents. Incase RIM fails to adhere to any of this, they would have their upcoming Blackberry 10 phones banned from entering the market.

Smartphone geeks rate the new Blackberry 10 to be aimed at those corporate and IT professionals with security being the key feature. You could go through separate work and personal accounts on this specific device. Nokia Lumia on the contrary is more "wow" phone with bright contrasting colors, Purview camera and mapping software that is considered the best in the industry.

Leaving the whole technical comparison aside, Nokia has tied up with two giants AT&T (NYSE:T) and Microsoft (NASDAQ:MSFT). Microsoft is adamant to kick Apple off of its high horse and bring them down to level playing grounds. AT&T at the same time provides a $450 subsidy on the iPhone 5 and a $350 subsidy on Nokia's Lumia 920. Keeping this in mind, AT&T would push for Lumia handsets over the iPhone 5 to save $100 on subsidy per unit.


You can observe a negative correlation between Apple and Nokia share prices; Apple's stock price declined while Nokia's stock reached multi-month highs in the past quarter. On January 14th Apple's stock dipped by $18.55 which is 3.57% in value after which reports confirmed that Apple is set to cut down iPhone 5 production due to a decrease in demand. A shift in power would be an exaggeration but yes, Nokia is definitely stepping up its game and is no more being bullied around.

Apple relies significantly on the sales on the iPhone; more than half of Apple's fiscal 2012 net sales is accounted for by Apple's smartphone alone. Judging by the way things are going and keeping in mind the $500 technical support price falling, Apple's share price may come down to $450.

Here's why things are looking good for Nokia,

With the settlement of award from RIM, Nokia has proved that just like the giant's Apple, Nokia too can extract value from their own patent portfolio. In their last quarterly report, the company's goodwill and other tangible assets accounted to $7.6 billion, their balance sheet also shows $11.1 billion in cash and $21 billion worth of liabilities. Nokia's cash flow has been very effectively managed by their executives, they've achieved this through debt refinancing, sweeping layoff and consolidation of real estate. Nokia is also rumored to skip paying dividends for the first time in 143 years, this alone would save them a minimum of $1 billion.

All this while according to their income statement, Nokia went through its stage of losses primarily because of their poor sales figures. Before the launch of Lumia there was a decline of 56% in year-over-year smart devices net sales. With the release of Lumia things are looking bright for now and their major competition is having a tough time facing this threat. I wouldn't be surprised if Apple were to announce an iPhone 6 launch shortly.

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.