Can This New Device Save Microkia?

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If there are two players in the mobile sector that have some serious work cut out for them, they're none other than software giant Microsoft (Nasdaq: MSFT  ) and Finnish gadget maker Nokia (NYSE: NOK  ) .

Windows Phone continues to struggle to reach a measly 2% market share, and Nokia saw its smartphone shipment volume plunge by 31% last quarter to 19.6 million units. Nokia still reigns as top dog in the mobile-handset market when you include feature phones, aka dumbphones, with Gartner's most recent figures showing Nokia had a 23.4% market share in the fourth quarter. Although that lead is quickly shrinking as Samsung and Apple (Nasdaq: AAPL  ) close the gap with 19.4% and 7.4% shares, respectively.

Enter the Lumia 900. Microkia hopes this new flagship phone may help turn the tide, and the device is coming in at a pretty aggressive price point for a flagship device. Carrier partner AT&T (NYSE: T  ) has just announced that it will offer the Lumia 900 for a cool $100 on April 8, complete with the standard two-year contract.

The handset will also be the first 4G LTE Windows Phone available, as Ma Bell tries to catch up with Verizon's (Nasdaq: VZ  ) LTE lead. Big Red has been enjoying a head start with LTE coverage and even went as far as to proclaim that it will release only LTE-capable smartphones for the rest of the year, which carries some interesting iPhone implications. Remember when I called 2012 the year of 4G LTE?

It looks as if the two largest carriers have picked their mobile OS sides. AT&T looks to be focusing on Windows Phone offerings, while Verizon has long sided with Google Android. Ma Bell currently carries four WP devices (not including the Lumia 900) and 21 Android models, while Big Red offers just one WP smartphone and 36 Android ones.

Windows Phone is inching closer to relevance, with its app ecosystem recently reaching 70,000; hopefully Nokia's hardware can impress the masses. Good luck, Microkia. You're going to need it.

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Fool contributor Evan Niu owns shares of Apple, AT&T, and Verizon Communications, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services have recommended buying shares of Google, Apple, Nokia, and Microsoft and creating bull call spread positions in Microsoft and Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (5) | Recommend This Article (8)

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  • Report this Comment On March 27, 2012, at 6:36 AM, Jab69 wrote:

    Looking forward to getting the lumia 900 on April 9th....Looks to me like a great device but only time will tell

  • Report this Comment On March 27, 2012, at 11:27 AM, lucasmonger wrote:

    Microsoft and Nokia have been irrelevant in the smartphone market for 5 years now (since the intro of the original iPhone. What makes this phone any different? Sure, half the price of other smartphones is a start, but the $100 over a two year lifespan is really chump change compared to the increase in carrier costs to go from a dumb phone to a smartphone.

    I don't see anything groundbreaking or revolutionary that will make the Lumia a runaway hit. Sure, it's better at some things than other phones worse at others, but from an investing point of view I'm worried about Microkia's prospects to win over the already crowded IOS and Android dominated industry.

    I still chuckle about Steve Ballmer's comments about the original iPhone and his insistence that he thought Microsoft had a strong product offering in 2007 and we'll see where they end up. The customers have spoken.

  • Report this Comment On March 27, 2012, at 12:22 PM, baldheadeddork wrote:

    I think everyone is missing the point.

    The $100 price on the Lumia 900 on AT&T isn't likely to move the needle for either WP7 or Nokia in the US. It might even be counterproductive if consumer looks at the price and immediately decides it must mean the phone is cut rate.

    But the US is no longer a major growth market for smartphones. We've hit the saturation point. Over half of American adults now have a smartphone and the rate of growth is expected to slow significantly from here on out. That means whatever WP7 gets in the US market will come primarily through captures from Apple, Google and Blackberry, and that isn't going to be easy.

    The really important number with the Lumia 900 is $450. That's the unsubsidized retail price and it's hundreds of dollars less than the retail price of an iPhone (or top-tier Android or WP7 phone) in every other market on earth.

    Three or four hundred dollars will probably get some traction in Europe but it's going to be a massive advantage in the BRIC emerging markets. That's the biggest smartphone growth markets in the coming decade and it's where Nokia is already the favorite phone brand by a huge margin.

    And the Lumia 900 is just the opening salvo. Microsoft told Bloomberg last week their manufacturing partners would " “definitely” offer devices in the price range of 1,000 yuan ($158)" That's one-fifth the retail price of an iPhone in China.

  • Report this Comment On March 27, 2012, at 8:15 PM, italianceltic wrote:

    I am long Nokia, but I had been considering liquidating my position until today. Out of the blue at the office today, the VMware Engineer was bugging the telecomm guy to get him the new Lumia 900. He said it is amazing unlike the previous version. Then one of the database administrators showed me the previous version and said he likes the functionality and that it was more intuitive than the iPhone. All of the executives now want the Lumia 900 instead of the iPhone.

    The problem with this story is that Nokia is subsidizing a $600 phone for $99. This will be problematic for the bottom line short term. Long term however, this may encourage wide spread adoption thus increasing Nokia's market share. At that point Nokia may have some pricing power.

  • Report this Comment On March 27, 2012, at 10:03 PM, baldheadeddork wrote:

    @italianceltic - I wouldn't be so quick to buy the Fool's reporting that AT&T is selling the Lumia 900 at $99 because of a big subsidy from Nokia. What they're saying doesn't pass the smell test.

    We know the hardware costs on any given smartphone is going to be in a tight range around $200. There are design and OS development costs on top of that, even for Android manufacturers, but Microsoft is underwriting a lot of those costs for WP7 devices - especially with Nokia. We also know from stories since the first of the year that Microsoft is offering subsidies to manufacturers to bring the handset cost down.

    Now look at the $450 non-contract price for the Lumia 900. Non-contract prices are usually pretty close to the price carriers pay. Barring some exceptional expense, they're making a decent profit at that price. Not Apple's $400 per unit, but still pretty good. If Microsoft is kicking in money on top of that, that's just going to be gravy for Nokia. (And what they spend supporting handset makers won't even be a rounding error on their quarterly reports.)

    I know I keep coming back to this, and I'm totally aware this could just be confirmation bias in motion, but everything Microsoft and Nokia is doing looks to me like an emerging market strategy. They're not going to ignore the US market, and they'll do everything they can to make the platform and Lumia series successful. But the whole point of bringing the handset price down doesn't really make a lot of sense until you look at India, China, etc - where handsets are not subsidized and $300-400 expands the market by hundreds of millions of potential customers.

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