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$NOK A Company Doing It The European Way?

|Includes: Nokia Corporation (NOK)

I did see the (outdated) Gartner reports - published last week - and all the discussions about the market share(s) on the Smartphone market (in Q4, 2012,...).
My first point I want to make is that there is a lot of comparison between things that should not be compared; don't compare "Apples and Lemons" - as we say in Dutch.

What is a "smart phone" ? There is no exact definition. From the moment that a phone can do more then sending messages and making calls it is - for me - a smart one. Being connected to the cloud (Facebook, Youtube, browser,...) makes a phone a "smartphone". I have the impression that the "Gartners of this world" state that only Samsung-Nokia Flagships and the iPhone are smart (or Android, WP and Apple), because these phones are the only ones they look at in hardware shops.
Market watchers do forget and neglect that also for example the "Nokia Asha line" is "cloud enabled".
There is very poor comparison available from official market research centers on "phones" and "smart phones" but it is for sure that Nokia is still one of the biggest market leaders in the total segment.

Some facts and considerations:

1) A "super booming" market of phones and smartphones; several new players (Huawei, Lenovo,..) will enter; but the cake of royalties for the investing companies grows together with the market; more people switch phones and upgrade - year over year. The market of portable and ruggedised communication devices is booming and will boom the next decade. There is no alternative for this UI (user interface, graphic but also non graphic). The "smartphone" will not be just a user interface like a tablet, display or a pc. It will be THE user interface almost like embedded into an individual. More and more the phone is your profile (you can not switch to another user for example - it works only with you). The phone apps collect, support, propose and are already the virtual extension of your own memory.

2) Together with this booming market the (new) services delivered are growing. Not only gaming or information but also services like payment. Huge amounts of royalties are on stake. Telcos and manufacturers will eat market shares and steal added value of banks, credit card companies and terminal payment companies. The technologies to implement (example mobile payments) are already in the phones (as banks have started to offer apps - taking away a barrier of trust). NFC will be the standard (as Bluetooth was to much ahead of it's time and people like more the "physical touch" of the devices) for security and exchange. Also the smart phones will cannibalize more and more the Telco market with superior IP-telephony. Video calls will be the come-back for voice communication ("how do you look", "where are you", "what do you think",...). It is the "Big Brother" world, but it looks that nobody cares and nobody is stopping this.

3) The smartphone is the camera, video, GPS, radio, pc, phone, TV, clock, agenda, game console, translator, … etc. More and more it becomes the payment, the book, the guide, the matching device, … For 150-600 Euro you have "all in one"; the added value on the components (for 100 grams of sand, metal, aluminum and plastic) is enormous. For HW manufacturers this is the market to be. The price of a small phone device selling at the price of an internet high resolution TV or a desktop PC? This is it, of course. On top of that there is recurring business (apps, content) and the customer needs a new device every 1-2 years? Sales and marketing via internet? Waw :-)

4) But on this phones we do need SW. Adaptation and communities is everything here. Android is open and "Google based" and did get the market for simple tools and "non transactional" apps (wonder why there are no real money Casino apps? → there you go). Microsoft - who can go "transactional" desperately needs the own ecosystem. As Windows is still (and will remain for the next decade) everywhere, this should work out. There is the consumer market, but much more important (in revenue) is the corporate market. Smartphones will give finally sales reps, support personnel and administration access to the data and in/outputs they need without setting up large and long IT projects. Windows Phone has here all the advantage as Microsoft can offer the integration (Office, Sharepoint, security, Exchange, DB,...). First companies (read: large IT departments) are deciding now for WP8 and specially the (more prestigious) top Lumia line.

Coca Cola is a good example and reference: they have a large fleet of Sales Reps and support (vending machines) and their marketing (B2C and B2B) is everything for them. Phones in corporate markets are replaced every 12 months, but on top of the 600 Euro phone there is a lot of services to do; this will pull other stakeholders in WP (service companies, SW companies, consultants,...). I think the shortage of Lumia phones was ands is also because of large demand of corporate clients. Still major countries in Europe have not the announcement of the Lumia 920 (only 820) what could prove my point here: the phones are not in the shops or in the hands of the early adopters but are reserved for corporate (Microsoft) clients.

And Apple? They do not have the "transactional environment" and huge base of SW engineers either. They did decide only to put functionality (and inspect every app) as they see it, and that will be the "consumer" (MP3, MP4, multimedia,..) market. A big problem for them is that they have missed the geographic based tools as they have messed up their map application. Thought, this was for Steve Jobs also the way he wanted to go (location based services and matching).

5) Nobody wants a phone with "1 million apps". You want to have an integrated and save unit (specially if you want to make your payments with it). Apple has this good "closed and certified" environment but is missing innovation. We will have a "deja vu" (second half of the eighties) battle between MS and Apple. There will be room for MS and Apple and Android but MS is now (as IBM also is still) in the IT departments with hundred of thousands "MS approved engineers".

6) I do like to test the phones. My opinion on the Lumia 920 is strong, as you see in all the tests. It did "crash" in the beginning to much and it got too warm sometimes (and energy consuming) but that seems to be resolved with the latest Firmware update. The video of the camera, the audio (Dolby and phone itself; is like a "Bose"), the display (you don't need a tablet to watch movies), how smoothly and automatically it is switching from 3G to Wifi, the Xbox integration (I started playing again against others and this really works!), the robustness (no scratches and yes, you can drop this phone on the floor), the GPS (offline, even, it works super!), sharing tools (yes, works fine!), virtual disk and backup (works, yes, I take a picture and minutes later it is on my PC,...), … To make things like this work I have to do a lot of personalization on my Samsung. And also a yes, the Office integration is strong - a nice competition with Google tools. I never wanted to use Bing, but the phone does not leave you a choice: but this will make also the ecosystem stronger and stronger for Microsoft. It is a tool - more than others - that feels like a toy and attracts to use.

7) Flashy Lumia: it is true that the youngsters don't like Apple anymore ("boring"), they do like the new Windows interface. The Xbox integration could make this phone-lines a winner. Nokia could be like the "Adidas": a vintage brand becoming the most popular in this segment. And the new FB generation is more and more influencing the 30+ I think this is a major point (and a good luck) for Nokia.

8) MS and Nokia are strong to integrate the technologies worldwide. Not only on HW standards (4G integration,...) but also on updating, IT and application platforms (national languages,...). I would compare with SAP: became the standard worldwide because the Germans did work for these goals. Apple is still too much focusing on the North American market.

9) There will be extra "power" towards the devices via the Telecom equipments (NNS is here an extra card), so is the ecosystem of Navteq (car companies, Oracle, … → all integrating as there is little alternative but also because the business model came out of a professional and not a consumer environment). I could not believe that the Nokia GPS would give me a similar good feeling like Google Maps (with Street View etc) but the result looks even better to me.

10) Will Nokia survive? They do have poor marketing, PR and communication after all (how CEO Elop could mess up the models in his Twitter yesterday, the Pureview incident,...), they do not care so much about the value of the stock (European behavior: we will prove our "right" at the end). They pamper a "we will see" attitude, and keep the cards in the drawer; meanwhile being mysterious on interviews and receptions. A little bit "MS attitude". The Nokia CEO (Elop) is acting "low level", they take positions with partners and financials until the next results. Most important is that Nokia could transform already in the past. There is a "Nokia gang". Not so many companies could realize this long term critical mass in the past (IBM, Philips, Apple, PWC, Xerox, car companies, …) or have this culture of change. If you own a CSR attitude like Nokia does, it is part of the DNA: to come back from an "underdog position".

Ok, I am long NOK (but never a fan of Microsoft as they move so slow and have to little change defending too long the "fast clients") and long in the sector itself - because of the reasons I have stated here.
But let us be clear: Windows Phone (as it is Windows 8) is already the third "ecosystem". It was the need for "touch" and finally makes that you can use the Microsoft environment without a mouse. And after all, the approach (tales) is - to me - more efficient (it is more hard to find your app on an Android between all the logo's). There will be room on the market for "non or less embedded smart phones" (Firefox, Blackberry (sorry, no idea how they can make it almost all alone), low Androids and others like Asha will come).
But at the end all the large companies will take advantage out of a this "wireless and mobile" market that still has to start booming. The total of services, HW and SW will be much larger than any business that has ever existed (like the market cap of Apple already is proving).

So, that will be a Win-Win-Win....

Disclosure: I am long NOK.