Nokia and Apple: New Strategies Spell Opportunity

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Includes: AAPL, GOOG, MSFT, NOK
by: Rafael Grillo
Today, two interesting announcements surfaced that will surely change the landscape in the heated smartphone arena, creating new opportunities for investors.
In a decision that indicates Nokia (NYSE:NOK) might be getting its act together, the company today announced that it plans to use Microsoft's (NASDAQ:MSFT) Windows Phone software as the main platform for its smartphones, an effort that aims to "pull market share away from Apple's (NASDAQ:AAPL) iPhone and Android, Google's (NASDAQ:GOOG) software for phones and tablets." This is huge news for Nokia investors. After losing the innovation leadership it once enjoyed in the mobile market, Nokia had pretty much become a non-entity in the smartphone category, the future is for mobile communications.
For years, the company stubbornly tried to stick to its strategy of developing its own OS platform without success. Its new CEO, Stephen Elop, is showing tremendous foresight and leadership in changing this strategy. He is finally steering Nokia away from the introspective stupor it has been for the last years and inserting it back into the battle. The choice of Windows Phone as its platform is risky, but smart. Android is becoming a crowded market, and for Nokia playing in that arena would have just meant being the weak latecomer in a category where LG (OTC:LGERF), Samsung (OTC:SSNLF) and HTC have built strong, dominating franchises. Windows Phone is yet to be proven, but it shows a lot of promise - reviews are very positive and Microsoft will back it with all its might to see it succeed.
By committing to this OS, Nokia turns into a key strategic partner for MSFT, gaining immediate leverage from this company’s power and influence to re-establish and consolidate its own foothold in the mobile market. With this decision, NOK is back in the game.
In another note, Bloomberg reveals that “Apple is working on new versions of the iPhone that are aimed at slowing the advance of competing handsets based on Google Inc.’s Android software." It adds that “one version would be cheaper and smaller than the most recent iPhone." This is a strategy with huge potential for Apple.
With this move, Apple would build on the aspirational, highly-desirable brand it has created with the iPhone, and reach a whole new segment of consumers for whom the high price of the current device is a significant barrier for adoption. This is of particular importance in international markets, where in most cases phones are not subsidized by local carriers. Some might argue that this strategy will cannibalize from the premium version of the iPhone and eat away from the value of the franchise. I believe that some cannibalization might happen on the fringes, but the strategy will ultimately be hugely accretive for Apple. This is no different than the strategy they’ve followed with the iPod, which resulted in Apple’s complete domination of the MP3 player category.
Investors with some appetite for risk will do well watching Nokia; this is a bold move that in the end will prove profitable. And in the case of Apple, hang in there ... the growth is far from over.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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