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Do Discounts on Nokia Phones Spell Trouble?

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Saving money during the holidays is the objective of most every shopper. But when it comes to the hypercompetitive smartphone market, discounts are often viewed negatively by investors. Assuming a phone is a hit, why would Nokia (NYSE: NOK  ) , or any other smartphone manufacturer for that matter, cut prices, especially so soon after its launch?

That's the question being asked as Nokia's new and improved Lumia 920, just released here in the States last month, is being offered at a discount by Verizon (NYSE: VZ  ) , Deutsche Telekom's U.S. T-Mobile unit, and on (Nasdaq: AMZN  ) .

The discounts
The Lumia 920, Nokia's flagship phone and the one CEO Stephen Elop hopes will eat away at Apple's (Nasdaq: AAPL  ) series of iPhones, Samsung's Galaxy lineup, and the Google (Nasdaq: GOOG  ) Nexus, was initially priced at $99. This price tag assumes consumers sign up for the requisite data plan. That's pretty standard. There aren't too many users willing or able to plop down the hundreds of dollars an iPhone, Galaxy, or upscale Nexus would cost without the subsidy.

Now that the holidays are, for the most part, behind us, the Lumia 920 can be had for as little as $39 on, Nokia's 822 is free at Verizon, as is the 810 phone sold by T-Mobile. All, naturally, require selecting an appropriate data plan to get the lower price. The discounts raise a couple of questions: Are they indicative of sluggish Lumia sales? And, just as importantly, who's footing the bill for lower prices, Nokia or its providers?

As Microsoft (Nasdaq: MSFT  )  investors know firsthand with its Surface tablet, trying to determine accurate sales figures when company representatives aren't talking is next to impossible. A lack of actual sales results doesn't stop speculation, however, and Lumia sales are no exception. Though off to a rousing start here in the U.S., and with the China Mobile (NYSE: CHL  ) deal under way, it appeared that the Lumia was doing just fine. However, concerns have arisen lately regarding what appears to be a slowing in sales, and now the discounted pricing has added fuel to that fire.

Nokia spokesperson Doug Dawson didn't lend much credence to the discounts, however, saying "Pricing is always a carrier decision, but holiday season promotions are fairly standard at this time of year."

As for who's picking up the tab for the additional Lumia subsidies, no one's  saying. Of course, as Dawson stated, it's usually the carrier that eats the phone cost to secure the data plan, but it's not unheard of for phone manufacturers, in this case Nokia, to shoulder part of the discounted cost in an effort to boost sales.

Some things to hold onto
There's no doubt Elop is hedging all his bets on the Lumia smartphone. Though there were a couple of hiccups during its initial launch, the Lumia, and by extension Nokia shareholders, have enjoyed a nice run of late. Though Nokia isn't releasing sales results (but do expect insight into those numbers during Nokia's Jan. 24 earnings call), there are several things Nokia fans can take solace in.

Nokia investors ate up the news of Lumia selling out at partner AT&T's (NYSE: T  ) online store, along with, in the U.S. The deal to supply China Mobile and its 700 million customers with its 920T smartphone was a coup for Nokia, to say the least. The icing on the Chinese cake was the announcement that China Mobile would subsidize the Lumia, bringing the cost down from about $740 to a mere yuan, equal to $0.16. Again, no firm sales numbers as yet, but nearly free for a top-of-the-line Nokia smartphone is a very good price, and certainly won't hurt.

The budding relationship with Verizon will add a significant player to Nokia's existing Lumia 920 partnership with AT&T. Verizon already offers the Lumia 822 smartphone, but adding the flagship 920 is a major win for Nokia, and should give it a nice sales boost in 2013.

The ongoing patent litigation with Research In Motion (Nasdaq: RIMM  ) has finally been settled , and if rumors are true, Nokia will see a one-time payment of between $150 million to $200 million, along with annual payments from RIM of about $50 million for 10 to 15 years. With an estimated value of $6 billion, and revenue of $650 million annually, Nokia's patent portfolio continues to pay off big.

Even with Nokia's share price feeling some pressure recently, stalwart shareholders have been rewarded with an 84% jump in value since June. But don't let Nokia's recent surge in share price, or its post-holiday Lumia phone discounts, scare you. The Lumia may not be the runaway hit we'd hoped for, but if you really want a discount, take a look at Nokia. A solid balance sheet, multiple revenue streams, a 6.5% dividend yield, and one of the best patent portfolios in the business have the company poised for a solid 2013.


Read/Post Comments (18) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On December 28, 2012, at 10:00 PM, EmergingGrowth wrote:

    Yes, discounts on Nokia phones spell trouble, but not for Nokia.

    Actually, discounts on Nokia phones spell trouble for Apple and Samsung!

    First of all, Nokia has said (see Nokia US twitter)

    that carriers decide the discounts not Nokia.

    This means carriers actually are pushing and backing Nokia phones.

    Secondly, the carriers in US are trying to put pressure on Samsung and Apple, because their new phones like Galaxy Note II and iPhone 5 cost customers $200, and with 32 GB the phones even cost $300. That is a whole lot more than Nokia´s Lumia 920, which is with 32 GB and with wireless charging pad, and the phone was sold only for $100 in the US when it was launched.

    Now, US carriers are wanting to use the model of subsidizing phones like in Europe. In Europe, when you go to buy a new phone with a 2-year contract, no matter how high end that phone is, you don´t have to pay the first lot of money like in the US. Every phone starts with 0 euro and you have to pay only monthly for 24 months.

    In this case, Apple and Samsung will lose the battle, not Nokia, because in the future Apple and Samsung will suffer from lower profits.

    Additionally, even China is now using the method from Europe. Both China Mobile and China Unicom have already announced their Lumia 920 starts from 0 or 1 yuan for a 2-year or a 3-year contract. So, if Lumia 920 still costs $39 in the US for a 2-year contract, that is a $39 win-win actually!

  • Report this Comment On December 28, 2012, at 10:06 PM, EmergingGrowth wrote:

    When now, both China Mobile and China Unicom are subsidizing the Lumia 920 heavily, the 2-year or 3-year contract is starting from

    0 or 1 yuan, and considering only less than 1/5 of Chinese people are using highest-end smartphones, now even middle class Chinese people have a chance to use a highest-end smartphone because of China Mobile´s and China Unicom´s Lumia 920 deals.

    This will result into a huge number of 2-year or 3-year contract users for Nokia in China! Besides, 3G penetration in China is still very low, there is a huge opportunity there.

    Additionally, among the highest end phones, Nokia Lumia 920 is significantly much cheaper than for example iPhone 5 and Galaxy Note II. Nokia has an advantage in both the price competition and the biggest carriers´ backing in China!

  • Report this Comment On December 28, 2012, at 11:19 PM, EmergingGrowth wrote:

    I just saw this video from Verizon.

    I can almost smell and feel that also Verizon is going to push Nokia´s coming products in a big way. Even with their "warming up" Lumia 822, they have done a great job with the promotion video! The video is clear and informative, practical and mass-market aiming.

  • Report this Comment On December 29, 2012, at 12:37 AM, RandomMeaning wrote:

    Clearly, if demand for Nokia phones were higher than the supply (referring to the faked "sell out" created by shipping small numbers so some Nokia and Microsoft execs could make bold claims), there would be no reason at all to lower the price of a product after its first month or so on the market. If demand were strong, Nokia and their distributors would be happily charging a premium.

    Lowering the price so quickly after launch is an obvious signal that sales are weak and Microsoft/Nokia/cell companies are willing to cut their profits (that's what happens when you lower the price) in order to move product. Better to lose some profits now than eat the write-offs later.

  • Report this Comment On December 29, 2012, at 2:43 AM, EmergingGrowth wrote:

    Now, you speak only about the US.

    Of course, Nokia would like to sell more phones in the US, that belongs to the come back strategy of Nokia. Nokia´s share price is this low, because

    Nokia´s market share in North America has come down significantly, even though in most parts of the world, Nokia´s market shares are still quite good.

    If the market share of Nokia in North America is also good, and you want to be able to buy NOK at $4, that would happen only in your dreams!

    Discounts or not, it does not matter. The real deal is, Nokia wants to gain back some market share in North America and the carriers are willing to help. That is what really matters!

    One way or another,

    if the sale numbers in US and Canada start to give only a bit positive sings of growth in Q4, you will certainly see the surge in the stock. Then, if you want to buy NOK share at this price, again--- it would happen only in your dreams!

  • Report this Comment On December 29, 2012, at 2:47 AM, EmergingGrowth wrote:

    Apart from that, you should also think, there is a world outside the US!

  • Report this Comment On December 29, 2012, at 3:21 AM, AnalystQuestion wrote:

    Nokia doesn't seem to be able to win with reports like this, firstly they are accused of limiting supply to give the impression there is huge demand, now cheaper prices are being attributed to poor demand. Based on this reporting, which is it, a shortage of supply or low demand, for both of these to be true supply would need to have been set incredibly low with demand not being much higher.

    A few facts to consider, AT&T have been out of stock of the popular yellow and cyan Lumia 920s for some time, Amazon last time I checked was also out of stock of the Red.

    My guess, guesses are the best we can do at present without numbers, is that Nokia are ramping up manufacturing volumes and are using pricing (of current and 800 and 900 variants), I assume greater supply of the other colour variants as well as increased distribution channels to continue momentum in the Lumia range.

    It is also interesting to note Android competitors also appear to have brought down prices, this is notably left out of this article. Is it too much to expect a more balanced article of what is happening?

    I got my Lumia 920 for Christmas and it is awesome.

  • Report this Comment On December 29, 2012, at 4:56 AM, EmergingGrowth wrote:

    The yellow has been in shortage everywhere.

    The discount is very normal at this time of the year, the reason might be AT&T just received another bigger shipment from Nokia, and AT&T (as I already mentioned above) wants to put pressure against Samsung and Apple.

    Sprint has sold iPhone with a profit of minus figure, you can imagine how big importance for the carriers in the US to press down the price of iPhone and Samsung´s newest phones.

    The discount idea actually benefits both Nokia and AT&T, the damage will go to Apple and Samsung as they too, also have to lower the prices in the future, because consumers in the US

    will start to know step by step they are actually paying extra money (about $200) to Apple and Samsung for each phone they buy, while customers oversea don´t have to do that. Therefore, AT&T and Nokia are showing the method to them. When more and more consumers in the US start to know the Lumia 920 is actually a superior phone and it costs $200 or $300 less than the iPhone 5 or Galaxy Note II, what does it mean? It means Apple and Samsung and their shareholders will be in panic, because those companies´ phone profits will no doubt come down naturally. And when the profits come down, what does it mean? It means the stock price of Apple, Samsung and Google will go downhill.

  • Report this Comment On December 29, 2012, at 10:24 AM, never2dull4u wrote:

    I always believe that the high demand for the Lumia phones was all a ruse. The speculation was further fuel by the bloggers who probably own NOK. When a stock trades in the "pennies", it doesn't take much to let greed get in the way of clearer thinking. Perhpas it was all about the PUMP and DUMP!

    Has anyone actually does any channel checking? Seriously? To say that Lumia 920 was on Amazon top selling phones means NOTHING! The last time I heard a smartphone on the Amazon top hit list was from the Garmin fanboys gloating about their Nuvi smartphone! Well, we know what happened to that phone, don't we? Garmin discontinued it a few months later.

    I don't own NOK stock long or stock. This isn't about Nokia. It's about whether the bloggers believe the Windows8 platform is a flop or not. That's what it all comes down to. So far, I strongly believe Windows8 is FLOP. Since Nokia is joined at the hips with MSFT, they will go down in flames. Time isn't on Nokia side. Apple can stop selling iPhones right now and still has $100 billions in the bank. As for Nokia, the more phones they introduced, the faster they burn through their cash! Introducing another me too tablet in this crowded market is a recipe for failure.

    Bottom line, Windows8 platform is a FLOP! Even if it was successful, Nokia will still have to compete with other W8 OEMs!

    It's a jungle out there!

  • Report this Comment On December 29, 2012, at 4:04 PM, SonofCaan wrote:

    WP8 is a capable OS. But it comes with compromises, not advantages for iOS and Android users contemplating a switch. Such as lack of Google apps and services.

  • Report this Comment On December 29, 2012, at 5:30 PM, emuster wrote:

    This report is full of errors. Verizon does not sell the Lumia 920. Verizon only sells the Lumia 822 which probably has been discounted to be able to compete with AT&Ts Lumia 920 offer. The Lumia still costs $99 at AT&T. The Amazon discount is a discount that Amazon gives on all cell phones. They pass on their comission to customers. You get the same discount on a Samsung Galaxy and other phones. I wish the author of this report would have researched before copying the same nonsense that's out there everywhere.

  • Report this Comment On December 29, 2012, at 6:26 PM, timbrugger wrote:


    Actually, if you read the article, you'll find it doesn't state Verizon sells the 920. Rather, after Elop's recent statements regarding expanding Nokia's relationship with Verizon, the expectation is that Verizon will soon become another Lumia 920 partner, along with AT&T. Elop essentially said as much, without actually saying it. Again, as stated in the article, Verizon currently sells Nokia's 822, but don't be surprised when its Nokia lineup includes the 920.

    As for Amazon, the same level of discount isn't across the board; iPhone 4's still cost over $400 on Amazon, and iPhone 5's are over $700 (no data plans, obviously). Samsung, like Nokia's Lumia 920, is another smartphone on sale right now, you're exactly right. Which is, if anything, confirmation that overreaction to Nokia's 920 'sale' is just that, an overreaction.

    Thanks for the post. Tim.

  • Report this Comment On December 29, 2012, at 7:40 PM, EmergingGrowth wrote:

    @never2dull4u, high demand or not, you and I are impossible to know. I think you should not judge that it is a ruse either. You should back up your comment with at least some facts instead of only judging Nokia is a penny stock. Dude, did you know that even Apple used to be a penny stock???

    The selling out of the Lumia 920 in many countries has been true.

    Italy´s online retailer has sold out at least twice of their Lumia 920 shipments, now waiting for more to come.

    Clove UK announced their Lumia 920 was sold out completely, and they will receive more only in January. Therefore in UK, almost only EE still has supply.

    Many Germany´s phone stores announced they have sold out the Lumia 920, especially the yellow variant has been in shortage since pre-orders alone.

    France and Sweden also confirmed the supply could not meet demand.

    Hong Kong has sold out the Lumia 920 repeatedly, because in Mainland China, only Shanghai store has received Lumia 920 till now, so people even make business with this phone, they buy it from Hong Kong with 4599 yuan and sell it in Mainland China for 5599 yuan (the yellow color variant).

    In Finland, the homeland of Nokia itself, the carriers there said they did not have enough Lumia 920s to sell for Christmas, leaving many customers without this wanted Christmas present, but they said they are receiving more shipments later, so customers should pre-order them.

    In my opinion, Amazon US now has more Lumia 920s, because Nokia launched Lumia 920 with AT&T in the US first, therefore when Nokia got more supply they wanted to fulfilled the duty with AT&T first, so they brought the phones there first when they have.

  • Report this Comment On December 29, 2012, at 7:58 PM, EmergingGrowth wrote:

    OK. Now, today Shanghai store received their second shipment of Lumia 920 phones. They had all 5 color variants, but the yellow variant sold out again in only 20 minutes.

    And it is important to note that it is Lumi 920 not Lumia 920T.

    In China, Lumia 920 is China Unicom version and Lumia 920T is China Mobile version.

    In other words, China Mobile customers have not received their phone yet, some of them even say waiting the phone a day like a year!

  • Report this Comment On December 29, 2012, at 8:10 PM, EmergingGrowth wrote:

    Now, I found one thing really funny.

    Usually, Americans have bigger hands than Chinese people, right?

    How come many articles in America complain the Lumia 920 is big and heavy, while the Chinese people don´t seem to have a problem with that?

  • Report this Comment On December 29, 2012, at 8:18 PM, EmergingGrowth wrote:

    Another funny thing is, now when US has more Lumia 920 phones and even with discounts, but writers turn the positive thing into negative, while many Lumia 920 pre-orderers are waiting for their phone around the world. They can not wait to get their hands on the phone!

  • Report this Comment On December 29, 2012, at 8:51 PM, EmergingGrowth wrote:

    For those who thinks Windows 8 is not doing well, read this!

  • Report this Comment On December 29, 2012, at 9:15 PM, EmergingGrowth wrote:

    Beside China Mobile and China Unicom, online retailers 360buy and 51buy are also taking pre-orders for Lumia 920T and Lumia 920 in China.

    Shipments are expected to arrive in January.

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