New Look At Nokia - Low End Lumias Are Crucial
After reading a few recently negative articles on Nokia (NYSE:NOK), we decided to share some of our research. Among key product groups Nokia provides unrivaled simplicity and value in the sub $150 smartphone space. What is unknown to many, is the internationalization benefits of Nokia Lumia phones that makes products like the Lumia 520 much more desirable than rival Androids. We predict storming market share gains for low end Lumias before the end of this year.
The Lumia 520 being the low end of Windows Phone 8 devices, provides fully downloadable Navteq (Nokia Here) maps that require no Internet connection. This along with glove sensitive touch screen and full support for all languages integrated in all handsets sold worldwide (unlike Android where special builds are needed for certain regions, e.g. Dubai), is appealing to a wide range of audiences. Undoubtedly, the Lumia 520 is a low margin product but a great strategic step that will reap rewards in the longer term for the Windows Phone eco-system and Nokia. Nokia is a good buy for investors looking at a 12 month or longer time horizon after the feature phone share loss stabilizes.
"... Nokia CEO Stephen Elop said he was encouraged that the Lumia 520 had started to sell strongly in China, France, India, Thailand, the UK, the US and Vietnam." (source)
Customer Testimonials
As with most stocks, we prefer to look at how the underlying product is selling and get a feel about sales direct from retail customers. For this purpose we stopped by a series of Carphone Warehouse shops in London to see how Nokia's new low price Lumias are doing. We saw feature phone customers upgrading to the mighty Nokia Lumia 520 phone, first hand.
Feature phone customers looking to upgrade to smartphones typically first inquired about an iPhone, looked at the iPhone price with horror, and then asked salesmen for alternatives. They were usually pointed to the Nokia 520 and cheap Androids. Most costumers with no knowledge of smartphones chose Windows Phones. For instance, Sally Silver mother of three told us "I think for me this Nokia Lumia 520 is more than enough. I just need easy email access and a modern phone and I don't see why I should pay four times more to get an iPhone." Although this product may have reduced demand for the Lumia 820 and Lumia 920 phones, it has attracted more developers and broadened the Windows Phone ecosystem. The downside for Nokia is the recent price reductions on the Lumia 920 to maintain competitiveness. However, it is clear Nokia is in this game for the longer term.
Bullish Catalysts for Nokia
- Slowing growth in high-end handsets & strength in low/mid end a trend that should help Nokia as consumers somewhat warm to Windows 8.
- Indications that Nokia has increased Lumia component orders in supply chain from 30 to 45m. Though actual numbers may be meaningless, it indicates Nokia's confidence potentially with sell-through.
- If Windows phones get 5% share by 4Q13/1Q14, we believe Nokia will make a profit otherwise it could dispose/shut-down the handset business.
- More bank analysts turning positive in the last couple of months (Nasdaq)
Shortcomings resolved?
From the list of shortcomings we mentioned back in January many have been addressed (original article). In particular, the lack of critical apps has been addressed. The BBC iPlayer and many other popular apps like Viber, Fruit Ninja, Asphalt 7 and other apps are now available. Nokia is listening to customer feedback as can be seen by product releases such as the lighter Nokia Lumia 925.
The Share Price Picture
(Click to enlarge)
The Nokia share price is on a clear upward channel towards the January peaks, with RSI in the normal zone; neither overbought nor oversold at this time. With such formation, it seems the bears have it wrong.
The Hazards
Clearly Nokia is not all about smartphones. The feature phone business in particular could be in trouble. We do believe that in the 5-year view there is likely a market for say 100m feature phone devices each year. So Nokia's quarterly volumes would need to decline from today's 55.8m to 25m per quarter. If things go well the profit loss will be offset by Lumia gains. Finally, we do not see much downside to the NSN business as it has stabilized, only losing some orders due to the Iran sanctions.
Conclusion
Nokia is in the second cycle of Microsoft's (MSFT) Windows phone. Most importantly, Nokia has low and mid range smartphones just as the growth in the market is mainly in that segment. In addition, Nokia with Microsoft is addressing many of the weaknesses. Indications are that the Lumia 520 has received operator traction and better consumer traction than previous models, verified by our independent UK retail checks. At the same time press reports (WSJ, Bloomberg on 20 Jun 2013) indicate that Nokia at the same time has looked at selling the handset business. Based on these reports and our independent visits to the high street Nokia's strengths in high quality low-end smartphones will prove invaluable. Thus we conclude that Nokia's bullish technical share run should continue until at least $4.50 if not more, if stock market conditions remain bullish over the next 3-6 months.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NOK over 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.
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Comments (65)
There is no future for Asha in China.
http://bit.ly/13l1xjE
The 521 has better specs and only sells for $90 usd here.
spec comparisonStorage (Nokia Wins)
Nokia 8MB
Saphire 4MBScreen (Nokia Wins)
Nokia IPS touchscreen
Saphire touchscreenVideo (Nokia Wins)
Nokia 720p HD Video
Saphire ???Talk time (Nokia Wins)
Nokia 9 hours or 360 hours standby
Saphire ???OS (Nokia Wins)
Nokia WP8
Saphire Patch fest Jelly Bean 4.1.3.4.5.3.230.z with some salt over the shoulderPrice (Nokia wins)
Nokia $90
Saphire $140????
The 520 is the best low priced entry EVER.
The WP8 the best OS MSFT has ever produced .
Why should I worry about Nokia not making money with this combo?
NOK no less than $5 before Xmas.
long NOK
let Nokia sell 100 million 521's
HERE maps/drive and Nokia Music grows with each device sold.
The 1020 will also be interesting. If word-of-mouth can get rolling, it may surprise somewhat on the upside.
Personally, I am hoping for a kick-ass phablet from Nokia in September, so I can get my first WP8 device.
Long NOK!
Q3 2007 OP -120m
Q4 2007 OP 0m
-
Q1 2008 OP -74m
Q2 2008 OP +154m
Q3 2008 OP +177m
Q4 2008 OP -179m
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Q1 2009 OP -361m
Q2 2009 OP -188m
Q3 2009 OP -1107m
Q3 2009 OP +17m
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Q1 2010 OP -226m
Q2 2010 OP -179m
Q3 2010 OP -282m
Q4 2010 OP +1m
-
Q1 2011 OP -142m
Q2 2011 OP -111m (acquired Motorola Solutions network assets)
Q3 2011 OP -114m
Q4 2011 OP +67m
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Q1 2012 OP -1005m
Q2 2012 OP -227m
Q3 2012 OP +182m
Q4 2012 OP +251m
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Q1 2013 OP +3m
Q2 2013 OP +8mNSN is an ongoing disaster. Not profitable. Not winning substantial contracts. Now, again, as before, lay-offs will begin, facilities will be sold and closed http://bloom.bg/1cvaoHIIt seems that sadly most realism has evaporated from here and now SA comments on Nokia are predominantly in Blackberry territory.
5% from 300M are ~15million.Can Nokia deliver 100% growth from Q2 (7.4M to ~15M)? I wish but somehow hard to believe.
You seem to be ignoring today's BIG NSN news....
What do you think of the $900 million dividend that NSN is going to pay to Nokia?
Rome wasn't built in one day, so don't expect too much just to be disappointed by the real numbers.
