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As part of its scramble to catch up to Google (Nasdaq: GOOG ) Android and Apple (Nasdaq: AAPL ) in the smartphone game, Nokia (NYSE: NOK ) has finally launched its long-awaited Windows handset. Called the Lumia 800, it's the first smartphone to come out of Nokia's strategic partnership with Microsoft (Nasdaq: MSFT ) .
"Lumia means light," Nokia CEO Stephen Elop told the Nokia World Conference in London, "and a new dawn for Nokia." Following fast on the heels of better-than-expected third-quarter earnings, this handset launch just might be the first rays of a rising sun for the benighted mobile-phone giant.
But first, the bad news
For the most recent third quarter:
- Revenue was down from $14.3 billion to $12.5 billion.
- Operating profit was down from $532 million to $71 million.
- EPS was down from $0.19 to ($0.03).
Believe it or not, as terrible as these numbers are, they're better than analysts predicted. In happier news:
- Cash flow from operations was up from $595 million to $1.15 billion.
- Cash and other liquid assets were up from $14.4 billion to $15.0 billion.
Nokia is still the world's largest mobile-phone manufacturer by volume. As such, the company continues to throw off a lot of cash at an increasing rate, further fattening its already healthy balance sheet. And with no long-term debt, it can operate in this current essentially profitless condition for a considerable time, until its higher-margin smartphone business takes hold. That's the plan, at least.
So far, so good
The Lumia 800 is initially only being offered in Europe and Asia and won't be offered in the U.S. until 2012. Some analysts expressed their disappointment at this, but it makes sense.
Much like its old rival Ericsson (Nasdaq: ERIC ) , Nokia's mobile phones, once ubiquitous in the U.S., are now practically nonexistent. Nokia sells most of its phones overseas, particularly in emerging markets, and that's where the company's brand goes the deepest, where its marketing is the most thought out, and where its distribution infrastructure is the most tried and true. So why not start the rollout abroad, work out the inevitable bugs, and then try to reconquer the states. Nokia's emerging-market experience could be a real competitive advantage going forward.
In another smart move, Nokia hasn't forgotten to address an aspect crucial to any successful smartphone strategy -- the user ecosystem. If the company is to compete effectively and create a viable third smartphone market all its own, it has to build an ecosystem surrounding its product that will be interesting enough to attract new users and sticky enough to keep them around. As such, the Lumia rollout includes a range of new, surrounding services in music, location, social networking, and gaming.
Trying to teach Apple a few lessons
Nokia also unveiled a second smartphone as part of its rollout, the Lumia 710. In an attempt to fill a market niche, or maybe make one, between the high-end smartphone market Apple and Android serve and the feature-phone space Nokia currently inhabits, the 710 will be priced much more aggressively than the flagship 800.
The Foolish bottom line
On the news of the Lumia launch, share prices for Nokia rose as high as $7.35, up from $6.75. The price has since settled around $7.15. Elop and Nokia shareholders, no doubt, would like to see more of this. But the buzz around the Lumia launch also made the P/E jump significantly, from around 14 before the launch to 26 now.
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