Nokia Makes The Right Move With Lumia 520

| About: Nokia Corporation (NOK)
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Post Mobile World Congress, I want to focus on the 520 with this article because it is an important development for Nokia's overall strategy to ride the little bit of momentum it has generated in the U.S. market with the flagship 920.

The 520 is a pure entry-level device using a mix of last year's specs and this year's OS, Microsoft's (NASDAQ:MSFT) Windows Phone 8 (WP8). The older generation Lumias and Windows Phone 7 devices were always behind the curve, either too under-featured to compete at the top end of the market or too expensive for the rapidly evolving commodity portion of the market. Google's (NASDAQ:GOOG) Android owned this portion of the market with players like Huawei, Kyocera, ZTE and Samsung providing the only real option for a new phone for non-contract MVNO's like MetroPCS (PCS) and others.

The Lumia 520 breaks into that market with an expected price of $183 (€139) and announcements that it will be available in the U.S. with T-Mobile (and its MVNO's) in the second quarter. It will launch first in Singapore and Hong Kong and move out to the rest of the world after that. The 520 spec-wise is nothing to get jazzed about, but with Windows Phone being so light on resource needs (who would have ever thought we would say that about a Microsoft OS) that the 1GHz dualcore Snapdragon SoC from Qualcomm, 512 MB of RAM, 8GB of internal storage and 1430mAh battery powering a 4 inch IPS LCD running 800x480 pixels is simply great entry-level value.

Add in an SD Card slot - something missing from nearly all WP7 devices - and Nokia's super-sensitive touch for good touchscreen response with gloves on that is light and colorful and Nokia has a device that will make price-sensitive consumers still wedded to Office and Windows think twice about an Android phone.

I am still convinced that much of Android's success is simply one of being a first mover to oppose Apple (NASDAQ:AAPL) and the iPhone. Everyone else had mobile OS's that simply could not compete and had to be re-built from the ground up (Windows Mobile) or abandoned (Symbian, WebOS). As the future becomes even more fragmented with the entrance of players like Mozilla and Ubuntu, the choices consumers face will be real and very interesting.

So it was an imperative for Nokia to get a competitive low-cost phone into the pay-as-you-go U.S. MVNO market because that's where the growth in smartphones is. Heavily subsidized low end phones that have to be coupled with expensive data plans is a dead end path. Flagship phones will still get the attention from the major carriers and that model will likely expand. We're seeing it exported to China, for example, with the Lumia 920T. The value proposition of getting a $600+ device for nearly no up-front cost is very enticing and paying a bit extra over the course of the contract is relatively small.

But, for low-end phones the cost of the inflated data service is too high and now even cost-conscious Americans are beginning to figure this out. The T-Mobile/MetroPCS hook up will play a major role, I believe, in re-making the low end of the smartphone market. So, the 520 coming to the U.S. being able to cover both the 1700 and 1900MHz networks is a big deal for Nokia and Windows Phone.

Nokia has a great history of being able to build low-cost hardware and turn profits on slim unit margins. With the interest in Windows Phone rising since the release of WP8 an entry-level phone with solid performance and a low barrier-to-entry should create a higher conversion rate of interest to sales and drive some market share gains in the U.S. I'm not convinced we will see massive gains from this phone but it will generate solid gains that will end the questions surrounding whether or not Nokia can survive. Windows Phone is extremely important to Microsoft as it represents, really, the future of Windows-based computing for the general user.

As a long-term speculative play with the release of the 520 and the 620/720 for the international markets, I like where Nokia is headed.

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.