Is Nokia Falling Asleep at the Wheel?

Analysts and investors alike aren't impressed with Nokia's (NYSE: NOK  ) new flagship phone, the Lumia 920. Investors sold off Nokia shares by 15% following the announcement, expressing their disappointment with the device's competitive prospects.

The handset is Nokia's first for Microsoft's (Nasdaq: MSFT  ) new Windows Phone 8 platform, transitioning from Windows Phone 7 earlier this year to a new operating system that shares a foundation with Windows 8. The Lumia 920 will need to compete aggressively with both Apple's (Nasdaq: AAPL  ) new iPhone 5 as well as leading Google (Nasdaq: GOOG  ) Android devices like Samsung's popular Galaxy S3.

However, Nokia has decided not to be particularly aggressive on one front: pricing. In fact, the Lumia 920 is priced at a premium relative to the Galaxy S3 in many parts of Europe when it launches in November. Reuters reports that many analysts are skeptical of the Finnish giant's decision to ask so much and that the device's sales may suffer for it. Ovum analyst Nick Dillon thinks the premium will be a tough sell to consumers.

With Android and iOS being the dominant mobile platforms today, consumers need some incentive to take a risk on the less-developed Windows Phone ecosystem. You'd think that Nokia would price lower to provide such an incentive to buyers that are on the fence about Windows Phone, especially as it has less than a 3% global market share and less of an app selection. Instead, the Lumia 920 will cost up to 25% more than the Galaxy S3 (before contract subsidies).

Thanks to Microsoft's strict control over its software, Windows Phone will inherently be more of a commoditized platform than Android, where OEMs are able to add more custom software modifications as a point of differentiation. Even HTC's new Windows Phone 8X flagship looks nearly identical to the Lumia 920.

In general, the more commoditized a market is, the less pricing power that companies have. That's Econ 101 right there for you. Maybe Nokia missed that class, though, and opted for Falling Asleep at the Wheel 302.

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Evan Niu, CFA, owns shares of Apple. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 27, 2012, at 9:15 PM, Arkbro wrote:

    So excited for this phone!!!!! As for the competitive proscepts of this phone, they meet or exceed the iPhone 5, and with maps that work! Will be ordering when it is available

  • Report this Comment On September 28, 2012, at 5:40 AM, nudnyk wrote:

    The fact that Nokia is quite is actually a good sign. Companies that are promoting their stock are usually not worth it. Nokia I believe has no stock holders above the 2% level and thus press releases are kept to real evevts. The market does not always make sense on a weekly or monthley basis. Example: Nokia shares rose leading up to the unveiling of the new phones, but when it was clear that they came up with a great phone their shares went down. I can say that my 1 year old Gallaxy II already looks like a 10 year old, The coating is peeling off and the screen broke the first time I dropped it. The reception is not good but better than my wife's iphone. I have had a Nokia generation III phone for 5 years it still is as good as the day I got it. I have no clue that the Lumia is as good as advertised, I know the Galaxy was not. Lets wait and see, Nokia shares will and should go up as the field starts to clear up.

  • Report this Comment On September 28, 2012, at 6:35 AM, llIlllIlllIlllIl wrote:

    If they are spot-on with the pricing they will absolutely rake in huge margin on the Lumia 920. If it's priced too high they will likely drop the price during the pre-order period as the level of pre-orders will validate if the price is right or not.

    Another factor is any discounts or subsidies by stores or carriers. Pricing a premium product at a premium price makes commercial sense as they need to ensure the image of this phone reflects its true god-phone reality. Shops and carriers could discount a decent chunk of the announced price then consumers understand they are getting a premium product for a discounted premium price.

    Looking forward to the stunning Lumia 920 to be available!!

  • Report this Comment On September 29, 2012, at 12:16 AM, renman2735 wrote:

    I truly am amazed how few people who have written about the launch and the fall in prices seem to have actually looked at an intraday chart to see the relationship of the timing of the launch with respect to the start of the sell off.

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