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 (NOK -0.27%), 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 (VZ 2.85%), Deutsche Telekom's U.S. T-Mobile unit, and on Amazon.com (AMZN 1.30%).
The discounts
The Lumia 920, Nokia's flagship phone and the one CEO Stephen Elop hopes will eat away at Apple's (AAPL 0.64%) series of iPhones, Samsung's Galaxy lineup, and the Google (GOOGL 1.27%) 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 Amazon.com, 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 (MSFT 1.65%) 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 (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 (T 1.17%) online store, along with Amazon.com, 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 (BB 3.21%) 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.
