Nokia's Lumia Strategy Will Pay Off Nicely
February 12, 2013 by: Ashraf Eassa |
When I first wrote about Nokia (NOK) many months ago, I dismissed its turnaround efforts and warned my readers to basically "stay away". The advice actually turned out to be pretty bad in the near term, as the stock ran from $2.37 to about $3.25 after the article came out. As I watched the stock continue to rally up, while I wasn't short, I like to understand my mistakes, so I decided to dig more deeply into the story. Quite frankly, I found myself almost stunned that I hadn't looked more deeply into it.
At $2.37, the stock had a ton of valuation support from the net cash position that it held on its books, in addition to the gobs of value that the company has from its brand, the Nokia-Siemens Network, and the Navteq mapping (which became super valuable in light of the Apple (AAPL) maps slip-up). So I quickly changed my tune, pointed out the viability of a turnaround play when the stock came back down to $2.67, and took a long position. I took my chips off the table when the stock went to about $3.40 and was happy to have nailed those gains.
Of course, my timing was terrible (surprise!), and the stock has traded well above my sale price to as high at $4.60, after pre-announcing a surprise profit. While the stock has come down to the $4.18/share level, I remain bullish. Why? My view of the smartphone industry is that it's going to be dog-eat-dog world out there. The margins will get slimmer, and it'll take high volumes to profit on the mainstream, while at the same time some real differentiation to maintain high ASPs at the high end.
Nokia, more than BlackBerry (BBRY), more than Apple , and only second to players like Samsung (SSNLF.PK) is well equipped to handle these kinds of situations.
Nokia's Aiming Low -- Where It Counts
Nokia doesn't come from the world of glamorous, high-margin smartphones like the iPhone. It's used to selling feature-phones, and lots of 'em. While feature phones are going to go the way of the dodo, they will be supplanted by fully-featured smartphones. In the future, say 3-5 years out, very few will be willing to pay the high prices for smartphones that we see today. The "cheap" smartphones will be so fast, so responsive, and so cheap to make that nearly everyone in the world will eventually have one, and they'll all be pretty much the same.
Nokia's strategy fits perfectly with this vision. In addition to offering the flashy, glamorous, and decidedly high end Lumia 920 and its younger Lumia 820 sibling, the company sells the Lumia 710 and 610 for the more budget minded. Not only will cheap, but fully featured smartphones help to raise Nokia's brand awareness, but it will also eventually lead to a run rate in volumes that can reasonably support the company's smartphone business. The higher end phones will be the profitable icing on the cake, but certainly not the main course.
In short, Nokia is doing everything that it needs to in order to become a solid long-term player in the smartphone wars. Volume at the low end, mindshare at the high end. It's rational, and it's got every chance in the world of success.
This guy is finally preaching what most longs here have sad for a long time.
He's wrong a out one thing though. There is always a portion of consumers who don't mind paying top dollar for the latest in innovation when it comes to gadgets. Yes smartphones will become commodities and after 8 cores or 16 cores and 256 gig flash in your cellphone with 500 ppi razor sharp ultra bright screen and huge but slim 4,000 mAh batteries in 5mm phones there simply won't be much more new stuff to out inside phones and even an older 3 year old phone selling for $100 will be considered top notch and capable of handing anything you throw at it.
However, there will always be room for a spendy high end cellphone with the latest tech and gadget and that will never end as innovation is constant. So I disagree when he says that ever sully there won't be any high margin high end phones - that's simply not true. As long as there's consumers willing to may too dollar Nokia will find something to innovate to get those high margins. And this is where Nokia has another advantage yet again, they have the largest innovation library and DNA which should suit them well in a few years when the iPhone will be a commodity.
This subject had been brought up numerous times on this board about Nokia's strategy, especially analyst calling it wrong, very old news. Same 5h1t, different dayTry again Seeking Alfalfa. Moving forward, does darn Indians has been all wrong over in Chennai. Nokia is back with a vengeance!
Finally seeking alpha is telling the truth, go by contrarian investors' sentiments and right about it.