Nokia Oyj (NOK) (NOK) is seeking to revive its U.S. business with a smartphone release this weekend that may determine the company’s future. Initial sales will probably trail competitors’ recent debuts, hurting the company’s chances.
Nokia’s flagship Lumia 900 that runs Microsoft Corp. (MSFT) (MSFT)’s Windows Phone software will start selling through AT&T Inc. (T) (T), the second-largest U.S. wireless carrier, on April 8. Sales in the first three months of availability may reach hundreds of thousands, rather than millions like for the market-leading iPhone, according to Deutsche Bank AG and Avian Securities LLC.
“It’s going to be an uphill fight,” said Matthew Thornton, an analyst at Avian in Boston. “The Nokia brand, while I think it’s still known here, lags Apple and even Samsung. I don’t see the phone becoming a hit.”
The price has been set at half that of the iPhone as Nokia is trying to rekindle sales in a market that drives smartphone innovation and global consumer trends. The Espoo, Finland-based company losing its mobile-phone leadership in the U.S. years ago foreshadowed eroding sales in Europe and Asia too as consumers worldwide followed U.S. users in adopting Apple Inc. (AAPL) (AAPL)’s iPhone and phones running Google Inc. (GOOG) (GOOG)’s Android software.
“This launch will set the tone for Nokia’s recovery,” said Alex Spektor, an analyst at Strategy Analytics in Newton, Massachusetts. “The U.S., since the rise of the iPhone, has become the most important market for mobile devices so success here is important for any vendor who wants to succeed on a global scale.”
Lost Value
Nokia, once the world’s biggest smartphone maker, has lost more than 80 percent, or $80 billion, of its market value since the iPhone’s 2007 release. The stock has slid 51 percent since Chief Executive Officer Stephen Elop started in 2010. The shares rose 0.9 percent to 3.88 euros as of 10:11 a.m. in Helsinki.
While Nokia and AT&T declined to give specific targets for the device, quarterly sales at below one million would likely disappoint them given Nokia’s typical volumes in other markets, according to John Jackson, an analyst at CCS Insight in Boston.
“It’ll have to be a number that starts with an ‘m,’” Jackson said. “Nokia doesn’t tend to get out of bed for any less than several million in the course of a year.”
Elop has said Nokia needs a revival in the U.S. as part of its turnaround plan. The debut at AT&T may be Nokia’s best chance to win back U.S. customers because new models from Apple and BlackBerry maker Research In Motion Ltd. (RIMM) (RIMM) aren’t expected before the second half.
IPhone, Android Debuts
“It’s critical for them to get this phone in people’s hands,” said Roger Entner, an analyst at Recon Analytics in Dedham, Massachusetts. “The timing is good, there’s no other major phone entering the market right now. The iPhone 5 is still months away.”
Citing muted consumer demand for Windows Phone and intense competition, Deutsche Bank’s Kai Korschelt estimates that Nokia could sell 680,000 Lumias a quarter at AT&T. If consumers show little interest and AT&T cuts back its support, sales could be as small as 140,000 a quarter, the analyst said in a March 30 research note.
Avian’s Thornton, who rates Nokia shares neutral, estimates that the company will sell 370,000 Lumia 900s this quarter. That would be about 5 percent of AT&T’s smartphone sales, he said.
In the fourth quarter, AT&T activated 7.6 million iPhones after introducing the latest version in October. Apple sold more than 4 million units of the new model in its first weekend alone, though it was released in other countries in addition to the U.S. Samsung Electronics Co. (005930), the biggest manufacturer of Android phones, sold 5 million Galaxy Note phones worldwide in the first five months after its debut.
Banking on Windows
The Lumia’s aggressive price and marketing spending may mean Nokia and Microsoft won’t make any profit with the device, and that may not be their focus, Thornton said. It’s crucial for the phone to become a hit to give carriers a reason to offer Nokia’s future Windows Phone devices, he said.
“If it flops, AT&T is going to have very little incentive to push this again when they come out with the next product,” Thornton said.
Nokia’s strategy is risky because while it can support its smartphone business with the money it makes from cheaper phones, its financial performance as a whole has deteriorated.
Plunging smartphone demand has driven Nokia’s revenue to below 2006 levels and the company’s loss exceeded $1 billion last year. Standard and Poor’s cut Nokia’s rating to one level above junk last month and signaled it may reduce it further.
Source: businessweek.com