Is a Lumia Disappointment in Store for Nokia?

Shares of Nokia (NYSE: NOK  ) have been on a run ever since bottoming out over the summer. The company now trades an incredible 134% higher than it did at the lows set in July. Investors have enjoyed much of that gain in the last three weeks, as reports surfaced in mid-November that the company's newest Lumia 920 flagship was seeing booming demand in geographies like Germany.

The device promptly sold out in the country, leaving Nokia scrambling to restock the phone, and giving investors hope that Lumia sales would shine this quarter. Are they about to be disappointed?

Brace yourself
Pacific Crest analyst James Faucette seems to think so. While product sellouts can be indicative of soaring demand, they can also point to supply shortages. Faucette believes we're seeing the latter as opposed to the former. His channel checks point to a few thousand units at initial launches and that retailers are only receiving "very small" shipments of Lumia 920 units. There is pent-up demand that leads to those units moving rather quickly, but there might not be a lot to go around in the first place.

That same storyline could be playing out domestically, where AT&T (NYSE: T  ) has scored device exclusivity with the Lumia 920. Ma Bell may only be selling 10,000 to 15,000 units per week, judging by current inventory levels. Faucette's estimates peg supply of new Microsoft (NASDAQ: MSFT  ) Windows Phone 8 devices at approximately 1 million units this quarter, with only half of those selling through to end users.

Here's the good news: the net result is that Nokia may be able to post higher Lumia sales this quarter than a year ago, thanks in part to older Lumia models still on sale. The company sold about 1 million Lumia devices in the fourth quarter of 2011 when the product family launched. Since then, Lumia sales have continued to ramp up, but the rest of its smartphone lineup has been ramping down, and Lumia sales were 46% of smartphone units last quarter.

Still, if investors get ahead of themselves hoping for a Lumia blowout, they could end up sorely disappointed.

Even within the Windows Phone 8 platform, Nokia faces increasing competition. There were reports recently that Samsung's Ativ S that also runs the operating system would be delayed until next year, but Samsung said the device remains on track for launch this year. The device is now beginning to launch internationally, but there are no signs of it stateside.

HTC will be the one giving Nokia a run for its money in the U.S. with its Windows Phone 8X. Unlike Nokia, HTC escaped exclusivity and the 8X is available on three out of the four largest domestic carriers: AT&T, Verizon (NYSE: VZ  ) , and T-Mobile. That gives HTC's Windows Phone flagship wider distribution than Nokia's flagship, although Nokia has a lower-end Lumia 822 available on Big Red's network. Add in the fact that some early reviews consider the 8X the best Windows Phone 8 device available, and it's clear that Nokia has its work cut out for it.

Nokia recently announced a version of the Lumia 920 bound for China Mobile (NYSE: CHL  ) , the world's largest carrier. The Lumia 920T will retail for roughly $740 without contract, as China Mobile focuses more heavily on the prepaid and unsubsidized segment of the market. It's also launching the 920 on China Unicom (NYSE: CHU  ) . Again, HTC is also putting the heat on; the Taiwanese OEM just launched its devices on all three of China's biggest networks, going head-to-head with Nokia.

Lumia's beginnings
The Lumia lineup very much represents the future of Nokia's smartphone business. Overall smartphone shipments have been on the decline as the company transitions to Lumia sales, which has hurt consolidated results. But Lumia has done well for its first year with 9.9 million units.

Sources: Earnings releases and conference calls.

It's a good start, but it's still going to take a while for this turnaround to take shape.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.

Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On December 13, 2012, at 8:37 PM, chilero wrote:

    Is Pacific Crest only looking at the US Market? There certainly may be disappointment there as half the population like carrying the exact same phone.

    Another metric that has been extremely successful in predicting Windows Phone sales is using the monthly active Facebook users as detailed on wmpoweruser here:

    It was very accurate for the holiday quarter in 2011. Using the same ratio for this quarter suggest possible sales of 4 million according to Alex Wilhelm of TheNextWeb .

    Granted that is all models of WPs but Nokia had been getting the lions share.

  • Report this Comment On December 13, 2012, at 11:40 PM, fitchrissie wrote:

    All Motley Fool articles, including this one, are advertisements.

    Shilling for the "premium report" and "paid membership."

    No wonder that Motley Fool hasn't been doing well, and its reputation is poor.

  • Report this Comment On December 14, 2012, at 1:33 AM, llIlllIlllIlllIl wrote:

    Who cares about Lumia numbers? When Nokia announces in mid-January that it has returned to profitability for Q4 the stock will soar.

  • Report this Comment On December 14, 2012, at 4:06 AM, dongennl wrote:

    Consumers just don't want Windows Phone. It's obvious, the stuff has been out for over a year and is not shifting.

    Have you ever seen one in the wild? Neither have I.

    The only option for Nokia is Android. Loads of people would buy a well engineered Android device.

    But they have to get rid of the plant first.

  • Report this Comment On December 14, 2012, at 8:28 AM, GCshipbuilder wrote:

    Why even regurgitate the garbage coming from PC? The guy posted a one paragraph "article" with no supporting facts for a clear reason. Once people started looking into him / PC they noticed a startling trend / correllation of shorting and negative posting.

    "early reviews consider the 8x the best windows 8 phone available"??? Sources please? Is that like the moron who complained because the extra ounce built into the phone was too much for him? Forget the fact that it's the first phone with a standard built in wireless charger (the source of the extra weight).

    I realize this whole investing game is like a game of poker and some people are always trying to bluff so that they can actually win with a losing hand, but I expect more from Fool. How about let's do our own analysis instead of copying the sentiments of somebody with an alterior motive?

  • Report this Comment On January 10, 2013, at 10:46 AM, chilero wrote:

    I had to revisit this post now that Nokia has announced that it sold 4.4 million Lumias in the quarter.

    So Pacific Crest was only off by a factor of 4x. If Nokia grabbed 70% of the WP market it looks like WP many have sold between 6-7 million units.

    They typically grab headlines for predictions but it would be nice to see them grab some headlines for a prediction failure.

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