Rare Apple Misstep Creates Opportunity For Nokia

| About: Nokia Corporation (NOK)
This article is now exclusive for PRO subscribers.

Apple's (NASDAQ:AAPL) iPhone 5 launch was a success, making Nokia's (NYSE:NOK) come-back with its Lumia seem even more difficult to execute. On the week of the iPhone launch, Nokia shares dropped 7.05%. ComScore reported that in the first three days of availability of iPhone 5, pre-orders were 96% of the number of iPhone 4S online sales during the entire first month of its release. The share of pre-orders by carrier was: 8% for Sprint (NYSE:S), 24% for Verizon (NYSE:VZ), and 68% for AT&T (NYSE:T).

Despite Apple's success, the launch was marred by users reporting a number of issues: the mapping application did not provide directions for public transportation, has a number of geographical mistakes, is missing some information, and lacks features. By deciding to scale back its relationship with Google (NASDAQ:GOOG) and its service offerings which includes maps and YouTube, Apple is giving competitors an opportunity to take some sales. The beneficiary of the rivalry between Google and Apple is none other than Nokia.

Nokia, whose shares closed at $3.20 when it was last reviewed in August, traded recently at $2.77. Investors sold off shares after the company announced the Microsoft (NASDAQ:MSFT) Windows Phone 8-based ("WP8") 4.3-inch Lumia 820 and the 4.5-inch Lumia 920, on September 5, but failed to announce a price or a release date. Both HTC and Samsung also announced they would develop hardware for WP8. To make things worse, Nokia was caught filming its PureView trailer with a different camera, in which it later apologized for the confusion.

On its social media sites, Nokia is aggressively marketing the virtues of its Lumia devices, citing its superior specifications. Since Nokia's turnaround timeline will take several quarters, a key step in delivering strong sales for its new device will be effective marketing. In a positive move for its shareholders, Nokia acted aggressively to capitalize on the negative sentiment by consumers for Apple's map. Nokia's said on its blog that:

Unlike our competitors, which are financing their location assets with advertising or licensing mapping content from third parties, we completely own, build and distribute mapping content, platform and apps."

In other words, we truly understand that maps and location-based apps must be accurate, provide the best quality and be accessible basically anywhere. That's been standard practice at Nokia for the past six years, and we also understand that "pretty" isn't enough. You expect excellence in your smartphone mapping experience.

Our superior apps are built on the most accurate, automotive-grade Navteq maps, meticulously developed by over 20 years of know-how. We believe that the best user experience comes indeed from precise data, robust processing of core platform functionalities like routing, geocoding and traffic, and by user friendly apps. All this cannot be built overnight.

The time it takes for Apple to address issues for its map will be time that benefits Nokia. Nokia's greatest strength is its mapping asset. Navteq cost Nokia $8.1 billion four years ago. The asset as service is also has an advantage over competitors, including that of Google: accessible offline on WP8, and offers turn-by-turn navigation (offline maps are available on Google Maps, but not for all devices and all versions of Android).

Challenges Remain

For the short-term, Nokia will continue to face formidable challenges. Nokia reduced the price of its existing Lumia 800 device, which will hurt margins. Continued support for the phone through WP 7.8 may help sales, but as Research in Motion (RIMM) learned, the OS 7.0 transitional release prior to Blackberry 10 failed to stem a steep decline in sales.

Lumia 920, initially set to be available in October, will be available at AT&T on November 2, with the software launch event taking place on October 29.


Apple provided a rare opportunity in allowing Nokia to shine. An aggressive marketing campaign leading up to the Lumia launch will help reverse negative sentiment in Nokia shares. If a software fix for Apple's map application takes longer than the market anticipates, Nokia's Navteq could appeal to a wider customer base. Nokia is innovating its map services a step further than its competitors: its augmented reality app, Nokia City Lens, came out of beta recently.

There is heavy open interest in Nokia January 18, 2013 $4.00 and $5.00 call options. Bullish investors are anticipating strong initial sales when the new Lumia is launched. These option investors will be rewarded in the short-term if Nokia's aggressive marketing resonates with consumers. Investors who buy shares at current levels will be rewarded even more.

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.