In an attempt to improve its falling smartphone market, Nokia Corporation (NOK) has slashed the price of its flagship Lumia 900, which is the sole Long Term Evolution (:LTE) device in its stable.
Nokia Corp. has chopped the price of Lumia 900 by 50% to $49.99. The smartphone is now available under a two-year contract from AT&T Inc. (T), which is the only carrier to offer Lumia 900 in the U.S. The reduction, which comes only after three months of Lumia 900's launch, is considered by many analysts as an indication that the device is not performing well. However, it is not clear how Nokia and AT&T will pay for the price reduction.
Nokia has been losing market share to Apple Inc.’s (AAPL) iPhone and an array of smartphones that run on Google Inc.’s (GOOG) Android operating system. In an effort to improve its falling smartphone market share, the company ditched its Symbian operating system (:OS) and teamed up with Microsoft Corporation (MSFT) to develop Windows based smartphones.
Though Lumia is a much improved offering from Nokia’s desk, we remain skeptical about its success, as the company has lagged far behind two of its closest peers in first quarter sales. Owing to worse-than-expected financial results, management has opted for another 10,000 headcount reduction and plans to close down three facilities in order to lower its operating cost. Additionally, for the first time in 14 years the company has lost its ace position to Samsung Electronics and has been downgraded by all the three major credit rating agencies.
We believe that the pressure of fierce competition from rivals led Nokia Corp. to slash its Lumia 900 prices. Although this could result in a mass market appeal for its flagship device but would eventually affect its bottom line. Nokia Corp. is also lagging behind its rival in application development count, which also needs to be improved in order to survive in this competitive market condition. Last but not the least, OS partner Microsoft Corp. has announced that Lumia 900 customers won’t be able to upgrade its software to Windows phone 8, which could be a major setback for Lumia 900’s success.
The current Zacks Consensus Estimate for Nokia Corporation is pegged at a loss of 11 cents for the second quarter with a growth rate estimate of (218.89%). For 2012 the Zacks Consensus Estimates stands at a loss of 30 cents with growth rate of (178.95%) while for 2013 it stands at 2 cents with a growth rate of 107.22%.
Recommendation
Nokia Corporation has a Zacks #3 Rank, implying a short-term Hold rating.
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