Nokia: A Sliver Of Light

| About: Nokia Corporation (NOK)

There has been a steady migration from feature phones to smartphones over the last decade and Nokia (NYSE:NOK) has been no stranger to this change. It was a leader in sales with Symbian-based smartphones before the advent of Android and iPhone.

On February 11, 2011, Nokia decided to move from Symbian to Windows Phone as its smartphone OS. It was projected that it would be a smooth transition from one platform to another with very little lost sales. Nokia would continue to support the Symbian product line until the Windows Phone product line ramped up. However, please take a look at the numbers below for Symbian smartphone sales before and after the announcement:

Quarter Symbian Sales Comment
2010 Q4 28.6 Million Very respectable
2011 Q4 18.6 Million Still good
2012 Q4 2.2 Million Falls off a cliff

How does the other part of the projection look like? Did the Nokia Windows Phones sales ramp up exponentially to compensate for the exponential decline in Symbian sales? Unfortunately, the projection of a smooth transition from Symbian to Windows Phone did not play out. However, the 2013 Q1 report, with its huge drop in revenue and sharp decline in feature phone sales and continuous cash burn in the Devices & Services group, provides a sliver of light in terms of Lumia Windows Phone sales:

Quarter Lumia Sales Comment
2011 Q4 1 Million First reported Lumia numbers
2012 Q1 2 Million Sales double
2012 Q2 4 Million Sales double again
2012 Q3 2.9 Million Sales lost in the Win 7.5 to 8 transition
2012 Q4 4.4 Million Back on track
2013 Q1 5.6 Million Current quarter
2013 Q2 7.2 Million Projected for next quarter

While the projected 2013 Q2 Lumia sales is only one fourth of the Symbian sales that Nokia achieved in 2010 Q4, the Windows Phone ecosystem appears to be gaining traction. Please note the anomaly in 2012 Q3 sales when Microsoft was moving from Windows Phone 7.5 to Windows Phone 8. The Windows Phone 7.5 smartphones were not upgradeable to Windows Phone 8.

Nokia's decision to switch OSs placed it back at the start line of the smartphone market share race allowing competitors to grow market share rapidly. While one can debate if it was the right decision, one thing is clear from Nokia's Symbian sales debacle, it is very difficult for a smartphone manufacturer to support multiple OSs. By extrapolation, it may be difficult for the various Android vendors to make in-roads into the nascent Nokia Lumia Windows Phone ecosystem.

Not only is it difficult for Nokia to support multiple OSs, even a major change within a OS can cause a decline in sales as noted above for 2012 Q3 Lumia sales. Fortunately, Windows Phone 8 is in the early stages of its roll out cycle and a major OS upgrade is several years away. This will allow Nokia to move forward steadily with its Lumia roll out without further disruption.

Nokia's stock price has gone from around $2.70 in November 2012 to a high of about $4.9 in January 2013. Currently, Nokia is trading in the $3.0 range, about 62% of the high. While the stock may have gotten ahead of itself in January, it appears to be a good value now. Being the only credible proponent of the Windows Phone ecosystem, Nokia is still a good deal below $3.5. In retrospect, Nokia was a steal below $2.0. Looking back a year from now, the same may be said about Nokia at current levels.

Disclosure: I am long NOK. 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.

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