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Nokia Coming To America: It's Not Easy Out There

 April 09, 2012 08:35 PM

Nokia Corp. (NYSE:NOK) is coming to America in a big way and with partner Microsoft. The dynamic duo is spending big bucks to find relevance in the smartphone market starting with a major launch party in Times Square featuring Nicki Minaj.

Nokia's new, high-end Lumia 900 is made from a single piece of milled polycarbonate running Windows 7.5 is now available for a low price of $99.

Finland-based Nokia is trying to find a space in the crowded stage where Apple's iPhone and Android-powered smartphones are ruling the roost. As of February, Google's mobile operating system Android has captured 50.1 percent of the smartphone market followed by Apple's 30.2 percent share, according to a study released by ComScore.

[Related -Microsoft Corporation (MSFT): Little Choice But To Buy Nokia Corporation's (NOK) Devices & Services]

"Nokia is in the midst of a major reboot and it won't be easy to win the hearts and minds of consumers," RBC Capital Markets analyst Mark Sue wrote in a note to clients.

Android and iOS, particularly Samsung and Apple now command over 50 percent of the smartphone market and almost 75 percent of profits. For its part, Windows has steadily lost share in recent quarters, a trend Microsoft hopes to reverse with Nokia's new launch.

"Thus far we would characterize the uptake of Nokia's Lumia 710 and 800 as "decent". For the 900 series, feedback, while early, seems constructive on the hardware and start screen's live tiles," Sue noted.

[Related -Microsoft Corporation (MSFT): Did Microsoft Act Late Over Deal With Nokia Corporation (ADR)?]

The major drawback for Windows smartphones would be the number of apps and the ecosystem, which is considered the most critical factor in purchasing a smartphone. There are over 70,000 apps available at Windows, a far cry from Apple's 550,000 plus apps and Android's 400,000 plus apps.

Unlike prior years, the smartphone market is becoming more less seasonal, even March saw growth. However, Nokia's first quarter may be another quarter of transition as the continued slide in the legacy Symbian business may mean Nokia posts units closer to 90 million versus of consensus of 92 million. For the March quarter, RBC expects global smartphone unit shipments of 140 million, an increase of 40 percent from last year.

On the positive side, carriers appear intent on diversifying away from Apple as their margins are now being meaningfully impacted by subsidies. Carriers may be keen to add a broader Windows offering as subsidies related to Apple may now be impacting their EBITDA margins.

Android and Google's plans for Google Wallet and other initiatives that compete with incremental revenue opportunities for carriers could also make service providers seek alternatives when it comes to smartphones.

Meanwhile, Nokia has to be mindful of pricing in emerging markets, the expanding Android ecosystem, and that price aggressiveness at the low-end smartphone market may mean less profit share for the remaining players trying to grab a piece of the action.

However, competition remains fierce in the smartphone market with Apple and Samsung trying to outpace each other in incorporating new technologies in to their products.

"Competition remains fierce and no one is standing still, which means Nokia has to have some leapfrogging abilities to gain share," Sue added.

The next major Windows Phone release dubbed "Apollo" is slated for the fourth quarter of 2012 and promises even more enhancements. Meanwhile, the high-end market continues to be defined by share gains from Apple and its expanding ecosystem. While Samsung is likely to launch the successor to its popular Galaxy SII over the next several weeks.

The analyst, who has an "outperform" rating on Nokia shares, recommends Nokia for those investors who can stomach the risks amid cheaper valuation, Nokia's patent portfolio and cash per share.

That said, winning over consumers and improving its brand equity with the masses may not be easy for Windows and Nokia.

Shares of Nokia lost 43 percent in the last one year when and  trading between $4.46 and $9.42.



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