Nokia Lumia Is No Apple iPhone Killer

| About: Nokia Corporation (NOK)
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Microsoft (NASDAQ:MSFT), yet again, is up to its old tricks. Live from Redmond, the very same corporation that brought us Zune and Bing, is now throwing money at another market that left its engineers in the dust. In February 2011, Microsoft brass literally boarded a plane to Finland and arrived at Nokia (NYSE:NOK) headquarters with several briefcases full of cash. Microsoft had put its tattered cape on to rescue Nokia from Darkness, mobilize for war against the Apple (NASDAQ:AAPL) Empire, and of course, rehabilitate its own image. Today, Microsoft, Nokia, and AT&T (NYSE:T) are shoving this Lumia phone into our faces and ordering us to buy. The Nokia Lumia is nice, but it is no iPhone Killer.


Define Cool

Microsoft, the brainchild of Bill Gates, will never break away from its functionally beta image. Apple's brutal I'm a Mac / I'm a PC ad campaign of the mid-2000's bludgeoned the Windows brand. During that time, Microsoft was tarred and feathered as the Company Man; a stodgy relic of tweed suits, spreadsheets, and rank and file work. Alternatively, Apple was the hotshot kid of the integrated, yet hip counterculture. Apple was the first-mover into cool, high-margin markets, while Microsoft was stuck in the past and doomed to commoditize innovation, like the railroad companies that your grandfather used to own.

Wall Street, of course, has spoken. Microsoft stock has done nothing over the course of one decade, but pay regular dividends, while Apple shares have taken an elevator ride to $600 and Top Dog status as the world's largest corporation. Microsoft, at least, has traded like a cash-cow utility over the past ten years. Nokia shares, however, prove that this company is "so 90's," as the handset maker got shellacked from $50 to $3.54 - between 2000 and 2012.

Are we supposed to believe that this Microsoft-Nokia odd couple is to topple Apple and the Mighty iPhone?

Please, show me the specs.

Phone Specifications

The Nokia Lumia, I admit, is a sweet phone. Even Steve Wozniak, the geek's geek, would agree. In an April 25, 2012 interview, Jobs' right-hand-man offered up high praise for a Windows phone that is "beautiful" and feels like a "friend and not a tool." Woz's comments, of course, set off a firestorm debate within the geek community that he quickly cooled. Although the Nokia Lumia design is a hit, Steve Wozniak still prefers the Apple iPhone as his favorite device.

The Lumia 900 is a large phone that comes in white, black, and the popular blue-green cyan color. This Windows phone is most remarkable for its large, 4.3-inch screen and 800 by 480 resolution display of sharp lines and rich graphics. Phone junkies and technology buffs will enjoy Lumia's 1.4 GHz Qualcomm (NASDAQ:QCOM) single-core processor that fires up a user interface that PC Magazine describes as "slicker than Apple's iOS." The phone transmits data through AT&T's fourth-generation network and features 14.5 GB in memory for music and 24-30 frame-per-second videos alongside its 8-megapixel camera.

Ironically, pocket protector geeks who salivate over technical specifications must recognize that this jargon will be rendered obsolete within six months by another round of gadgets, including the looming iPhone 5.

Nerdspeak gobbledy-gook means nothing to Joe Six Pack, his teenage daughter, and her hipster boyfriend. The masses are only concerned with a device that is both user-friendly and cool.

The smartphone is a fashion accessory; and the Nokia Lumia falls short as a stylish handbag, leather bracelet, or sharp tie clip. The roughly 70,000 applications available to tailor the Lumia experience pale in comparison to the more than 500,000 financial, gaming, and social networking apps developed for the competing iPhone. More importantly, the iPhone remains a gateway into Apple's closed circuit of iCloud, iPad, and iTunes artistry.

Thanks, but no thanks, for the Zune music store.

The Bottom Line

AT&T sells the Nokia Lumia 900 for $99.99, if you agree to a two-year contract with the carrier. Without a service commitment, you would pay $449.99 for the Lumia through AT&T. Although $99.99 seems like a $350 subsidized discount, the cost savings for consumers are illusory. AT&T, of course, is banking that it can recoup up-front losses on the phone with future revenue from data plans and early termination fees, which max out at $150 at the time of this writing.

For the sake of comparison, AT&T offers the 16GB Apple iPhone 4S for $199 - with a two-year service agreement. At the Apple Store, consumers can pay $649 for an unlocked iPhone without a contract plan. We can therefore calculate that AT&T is eating $450 in up-front subsidies - for every iPhone that it sells. AT&T saves $100 ($450 - $350) in up-front costs on every Lumia that it hawks to the public, at the expense of iPhone sales. For AT&T, the Lumia is but a mere pawn in the Game that it hopes to use as a bargaining chip to drive down Apple's obscene iPhone prices and margins.

AT&T is playing a high-stakes game of poker that will only anger Apple executives and blow up in its face.

I feel that all sales data projecting success for the Lumia launch must be seasonally adjusted to match long-term reality. AT&T and Microsoft have gone all out to throw their weight behind this phone - in a desperate attempt to steal share from the Google (NASDAQ:GOOG) Android / Apple iOS juggernaut. Meanwhile, as compensation for a small glitch, Nokia offered up $100 rebates to all customers who bought the Lumia through April 21st. Of course, Nokia could sell 2 million Lumia phones in Q1, behind a media blitz where they hired rapper Nicki Minaj to effectively give these things away.

And the beat goes on.

Apple will release its iPhone 5 later this year to a nightclub atmosphere, and we will forget all about this Nokia Lumia hoopla. As for stock positions, I do think that Apple is relatively cheap at $600 and 15 times trailing earnings. Apple carries $120 per share in cash and investments on its balance sheet, which arrives courtesy of its average 65-percent net income growth over the past five years. Alternatively, Microsoft is little more than a commodity / utility play that mines for resources on the New York Stock Exchange floor. Over the long term, Microsoft shareholders should be happy to take a seat and collect dividend checks.

Lastly, Nokia is a call option at $3.65. With this last ditch smartphone release, Nokia could either be the trade of the decade, or it could go down in flames, if the Lumia were to flop and Microsoft abandons ship.

Are you feeling lucky?

Disclosure: I am long AAPL.