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New Look At Nokia - Low End Lumias Are Crucial

Aug. 07, 2013 11:22 AM ETNokia Oyj (NOK)MSFT65 Comments
Sal Marvasti profile picture
Sal Marvasti

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

This article was written by

Sal Marvasti profile picture
A professional but independent Quantative Analyst and occasional trader now in the midst of forming a new Capital fund. I believe in the motto, hold for the long term, optimise for the short term; that is ever since my *Market return and market share based optimization modelling *banking IT infrastructure *quantative trading (OpenCL and C++, Java) *high performance robots *risk *natural language parsing * Information extraction from CDS, ABCDS, and OTC Bloomberg runs We aim to invest for the long term, and only invest short term if our contractual terms allow.

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Comments (65)

toraji profile picture
Low end Lumia works for Nokia but for apple??

Motly fool does not think so

"With BlackBerry still reeling, Apple phones slowing, and Samsung reaching a plateau, my bet is that Nokia reemerges as a leader in the cellular industry, and in a big way. Its namesake already has taken a cavalier stance against its rivals by using the Windows-based phones as a launching pad through Nokia’s hardware contributions. "

DWD Investing profile picture
Motley Fool is a horrible source to bet on.
Oh, and the carriers (AT&T, Verizon, T-Mobile) need to advertise the Nokia Lumia's!
Nokia needs more advertising in general. Microsoft has to step it up (practically all WP8 phones are Nokia) and do a lot of advertising for Nokia and WP8!!!
NOKIA needs to put more advertisement in China.
There is no future for Asha in China.
I believe Nokia's stock is a great buy right now. They have an awesome line of phones with the Lumia, with a phone priced for just about everyone! They have the power and money of Microsoft behind them and should do very well with the business folks, it’s such a great fit. They currently have 170,000 apps and growing daily! They have re-orged and in transition and sales and stock price will climb as a result. I'm finally hearing some positive chatter about the Nokia Lumia's too! the Nokia trunaround is just beginning... Nokia will be a success! WalMart has the Lumia 521 online again, the 1020 is is unbelieveable phone, and the 92x's are exceptional!!!! I'm excited. Checkout the 1020:

The good news coming out regarding Nokia and Windows phone just keeps coming. The 520/521 lumia variants are having a great impact on the ecosystem. IDC's latest data, along with others, supports this. I do get the feelong however that not everyone here is happy with the good news on top of already good news that keeps coming our way.
This sells for only usd140 & it's specs much better than 520 which still selling for usd160 here...check it's FB number of likes and u know why I dump my Lumia for Android again
doggiecool profile picture
The 521 has better specs and only sells for $90 usd here.
solucky profile picture
20$ for live long free music and free navigation
doggiecool profile picture
spec comparison

Storage (Nokia Wins)
Nokia 8MB
Saphire 4MB

Screen (Nokia Wins)
Nokia IPS touchscreen
Saphire touchscreen

Video (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 with some salt over the shoulder

Price (Nokia wins)
Nokia $90
Saphire $140????
The 1020 is absolutely the best smartphone EVER.
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
People needs to wake up, paying $600 for apple and samsung phone is too much money. Nokia phones have the same quality is those phones. Apple, take my iPod make it a phone, turn my phone make it a tablets, take my tablet make it a computer. iPhone 5, 8, 9, 10... when does it end when apple reach 1phone gazillion, all your buying really is upgrade software of a phone, but it is the same phone. atleast nokia offer something different. samsung, iphone is not going to be king and queens forever.
toraji profile picture
One of my main reasons why I believe in the Nokia-Microsoft partnership is that I see the moods from people change drastically

For those who are interested in what I mean you should read this review and see the comments underneath... This guy gets "smashed" by his readers ;-)

"Nokia’s Lumia 1020: the best smartphone camera ever — too bad it’s wasted on Windows Phone (review)"

07 Aug. 2013
I think it is good that Nokia can sell lots of 520 or other cheaper Lumia phones. If users are satisfied and like WP8 experience and Lumia phone. When they in future buy their next cell phone, Nokia has probably good chance to sell better and more expensive Lumia to her. Short term cheap 520 is not so good business as would be selling higher end Lumias. But Nokia and this third mobile WP ecosystem needs more users and that 520 "way" seems to work well.
doggiecool profile picture
let Nokia sell 100 million 521's
HERE maps/drive and Nokia Music grows with each device sold.
I agree with your assesment of a very solid Q3 for the 520. It seems to be doing really well in most markets.
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!
11918901 profile picture
There seems to be a number of former wonderful tech companies that are flirting with bankruptcy due to their market position and in relation to global economic dilemmas. Moreover, we have to face it, the market as a whole is closer to the end of the current bull cycle than the beginning. Apple is in a totally different arena when comparing its quality to many large caps and virtually all medium and small cap companies. Apple will still be a prominent magnet for investment monies after much of the investment capital has left lesser, debt burdened companies.
Zhang Fei profile picture
"Apple is in a totally different arena when comparing its quality to many large caps and virtually all medium and small cap companies."

With the introduction of its Iphone in 2007, Apple has done very well catering to the tastes of fickle consumers over the past several years. However, projecting its past success into the future is risky. EPS for the quarter is down 20% year over year - the third time in a row Apple has had a down quarter on a YTY basis since the Iphone came out. AAPL isn't a quality company - that distinction is reserved for utility-like companies that collect revenue streams day in and day out, regardless of the fashions of the day. P&G is a quality company. McDonald's is a quality company. AAPL is a tech gadget company that is a few product busts away from a huge collapse in its stock price - in a sector where product cycles refresh annually. Anyone who thinks what happened to NOK can't happen to AAPL is a little too attached to the AAPL hype.
solucky profile picture
Nokia is more than smartphones !! 85% of Nokia have nothing to do with the Lumias.

Unfortunately we know now that NSN seems not to be a cashcow and the 1,7 billion seems not a bargain price. Week NSN sales like a few speculate earlier and another 8500 jobs cut. And now Nokia have to pay the costs alone

Joeriii profile picture
can you tell me why NSN doesnt seem to be a cashcow? it added mills to nokia's bank
solucky profile picture

Look to NSN the last 5 years, one of the best quarters if not the best was Q4/2012. NSN was not a success story so far, and it seems it continues.

Overall the new rumours give a hint, restructuring will continue.

If it works fine they sell plants inclusive employees and make a bit cash , if it run poor we will see another huge ammount of money that is gone.
Andreas Hopf profile picture
Most commenters do not seem to understand Nokia's predicament. As for NSN, just look at how little meat is on the bone:

So far, there were signed contracts (not "will help to..." letters of intent) from Iraqi Korek (no value and time given), Russian OAO Mobile TeleSystems ($200m Q3 2013), Saudi Mobily Etihad Etisalat ($325m 2013-2015, with Ericsson), Chile America Movil Claro (no value and time given), Singapore M1 ($69 2013), Thailand AIS (no value and time given, with Huawei and ZTE), Brasil TIM (no value 2013-2014), Bosnia and Herzegovina BH Telecom (no value and time given), Switzerland Orange (no value 2013-2018), Germany E-Plus (no value and time given), Chile Movistar (no value and time given), Guam DoCoMo Pacific (no value and time given). Source: http://bit.ly/13aNtsM and http://bit.ly/WNydll

Q2 2007 OP -1266m (from 1. April as NSN joint ventue)
Q3 2007 OP -120m
Q4 2007 OP 0m
Q1 2008 OP -74m
Q2 2008 OP +154m
Q3 2008 OP +177m
Q4 2008 OP -179m
Q1 2009 OP -361m
Q2 2009 OP -188m
Q3 2009 OP -1107m
Q3 2009 OP +17m
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
Q1 2012 OP -1005m
Q2 2012 OP -227m
Q3 2012 OP +182m
Q4 2012 OP +251m
Q1 2013 OP +3m
Q2 2013 OP +8m

NSN 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/1cvaoHI

It seems that sadly most realism has evaporated from here and now SA comments on Nokia are predominantly in Blackberry territory.
"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."

Assuming that smartphones shipments continue to grow say 30% it would be ~300 million devices per Q (from current 236M).
5% from 300M are ~15million.

Can Nokia deliver 100% growth from Q2 (7.4M to ~15M)? I wish but somehow hard to believe.
toraji profile picture
And the good news does not stop :-)))

Windows Phone shipments surge 77 percent in second quarter

Shipments of smartphones running Microsoft's mobile OS jumped more than 77 percent, says research firm IDC.


I dont think we have to worry about that 5% ;-)
KIA Investment Research profile picture
good stuff toraji, thanks!
toraji profile picture
My pleasure KIA
DWD Investing profile picture
Nice article and I agree except for this position:

"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."

If the handset business is not profitable, no one will want to buy it anyway, regardless of any patents. And I doubt Nokia, after putting so many resources into reviving the handset sector would dump it after Q1 2014, unless there was absolutely no future profit to be made.

For instance, even if there is no profit in Q1 2014, but people are really starting to warm up to the Lumias, there is no good reason to dump the hand set division with probable profit just over the horizon. I just can't see Nokia giving the new handset/platform less than one full year before shutting it down (WP8 platform). No way. That makes no sense at all.
Jonathan Bluhm profile picture
Nokia may be slow to gain customers, but they are gaining. Almost every site I look at where there are consumer reviews (ATT, Verizon, TMobile, Amazon, Walmart, etc.) on their products, they are rated higher than any other competitor's devices. People seem pleasantly surprised by the Windows Phone 8 functionality and ease of use. Another consistent comment is that for the money, Nokia packs in so many features to its devices. They seem to love the HERE maps/navigation because it can be used without a data connection.

As a Nokia shareholder I have been consistently frustrated with their perceived lack of advertising. The only ads I have seen (print or television) have been Microsoft, ATT, or Verizon's ads. I am beginning to think that Elop is onto something to let other companies spend their money advertising their products while keeping Nokia's cash at home for R&D. I would love to see some Nokia developed ads though, much like the Apple or Samsung ads.

Regardless, word of mouth and quality product reviews by publishers or customers seems to be doing just enough to keep the Nokia turnaround alive. Add to the growing Lumia sales the purchase of NSN (which can be sold off if needed) and I think we still see an undervalued company here. I like NOK at around $4 and will continue to accumulate shares. Bears- please keep the share price down for a few more quarters so I can get in as many as possible prior to the price hitting $5 and taking off from institutional purchasing. Thanks!
Andreas Hopf profile picture
Windows phone gained a whopping 0.5% market share from Q1 http://bit.ly/17zj91c to Q2 http://bit.ly/14z3gYI At that rate, Windows Phone will be obsolete before it reaches 10%.

The more I think about it and ask around, Nokia has probably an Android plan in its skunkworks. Question is: will Stephen Elop be able to overcome the loyalty to his ex employer?
KIA Investment Research profile picture
Latest IDC figures are out - Windows Phone shipments surge 77 percent in second quarter http://cnet.co/1bca919

Nokia accounted for 81.9 percent of all second-quarter Windows Phone shipments, IDC said...
doggiecool profile picture
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?
I wonder could we see 10 million L520 Lumias sold this Q? I guess it's doable considering huge positive information regarding L520 (assuming Nokia is able to make 10M per Q).
i think we could be happy to reach 10mio Lumias overall. This would already be a huge success!!
Rome wasn't built in one day, so don't expect too much just to be disappointed by the real numbers.
ETF Monkey profile picture
Interestingly, in the upper end of the price range, NOK is effectively having to compete against AAPL. In other words, they have to address the consumer question: "Why would I buy a Lumia (1020, 928, 925, 920) over an iPhone?"

I have read articles positing that a new low-priced iPhone will be the death knell for NOK. I'm not sure they are right. For, in this market, it is APPL that is being forced to do something different; compete at more the margin-squeezing "commodity" level as opposed to a premium product, with associated premium margins. Given everything you feature in this article (e.g. fully downloadable Navteq (Nokia Here) maps that require no Internet connection), potential customers may be asking the reverse question: "Why would I buy a bargain basement iPhone over a solid and proven offering like the 520?"

It seems NOK has a built-in advantage in that they have been competing in pricing-challenged markets for years now, unlike AAPL.
Zhang Fei profile picture
"It seems NOK has a built-in advantage in that they have been competing in pricing-challenged markets for years now, unlike AAPL."

Iphones are a poor man's Patek Philippe or Rolex. Once Iphone prices start sliding, and the premium image begins to evaporate, a lot of users will migrate to the familiar Windows interface. MSFT did switch its entire PC interface around to accommodate touch screens, which are seldom available (or used) on PC's, so there's no question that it's committed to WP8. Bottom line is that in the next several years, AAPL's downmarket Iphone will end up simultaneously crashing its margins and unit volumes.
DWD Investing profile picture

You are right about Apple. It has seen profit by selling first off products at noncompetitive prices, such as the iPod and then the iPhone. Even their PCs have always been much higher than Windows PCs.

Apple's profit has come from people buying overpriced hardware. Once they have to compete because the once off products they have been profiting from become saturated, Apple will either (1) be in trouble or (2) come out with another innovative new piece of hardware that has no real competition.
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