Nokia’s Windows 8 Phones Likely To Arrive On Verizon

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Nokia’s (NYSE:NOK) Lumia line could have a much bigger presence in the U.S. soon. Not only are Nokia and Microsoft planning a media event on September 5 to announce a possible Windows 8 Lumia launch but also are rumored to have roped in the nation’s largest wireless carrier, Verizon (NYSE:VZ), to carry the rumored smartphone. Verizon will not however be part of the media event, a Bloomberg source said. [1] This news comes on the heels of Richard Kerris, Nokia’s Vice President of Worldwide Developer Relations, revealing in an interview with Neowin last month that a Lumia device could soon be on its way to Verizon. [2] With  AT&T (NYSE:T) and T-Mobile already offering the Lumia 900 and Lumia 710, respectively, adding Verizon could help Nokia’s addressable market in the U.S. surge by more than 80%.

However, Nokia faces an uphill task against the two well-entrenched ecosystems of Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) to create a niche for itself and Microsoft (NASDAQ:MSFT). Nonetheless, more carrier partnerships and better app support to drive Lumia sales will be key to its resurgent hopes. We have a $5 price estimate for Nokia, more than 70% ahead of the current market price.

See our complete analysis for Nokia stock here

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Nokia has carrier backing

The need for more competition in the smartphone market, not only for hardware but also software, is being increasingly felt by both customers and carriers alike. A competitive third mobile ecosystem will increase the number of choices for customers and foster innovation in the industry. More competition will also put less burden on the carriers who are increasingly feeling the pinch of smartphone subsidies on their margins. It is no wonder therefore that wireless carriers in both the U.S. and China have jumped on Nokia’s latest offerings to counter the growing dominance of Android and iOS in both these markets.

In the U.S., T-Mobile and AT&T were the early Lumia backers with AT&T affording the phone a “hero” status at its stores and making it the exclusive free phone for all AT&T employees to generate awareness. The Lumia therefore not only benefited from a greater marketing push from its founding partners but also the second largest national carrier. While Nokia doesn’t have a CDMA handset available in the U.S., it has already released one in China, the Lumia 800C, and so it’s only a matter of time before the customized handsets are available on the CDMA networks in the U.S. as well. With Windows Phone 8 on the horizon, bringing in more CDMA-based carriers like Verizon and Sprint into its fold will be the next step in Nokia’s gradual plans to penetrate the U.S. market.

As for China, its smartphone market is expected to be the largest in the world by the end of the year. With 3G penetration at a lowly 18%, the growth potential is huge. Even the carriers here are actively trying to transition their huge 2G base to 3G. China Telecom has already jumped on Nokia’s 800C offering, and it shouldn’t be long before China Mobile and China Unicom also lap it up.

While selling the iPhone is more lucrative considering its incredible popularity among buyers, emerging market carriers are wary of margin pressures that selling such an expensive phone entails. Nokia can alleviate these concerns by offering more handset choices at lower prices, or packing in more features at the same price. While the iPhone retails at an unsubsidized $775 in China, Nokia’s Lumia 800C is priced at a competitive $570, more than $200 cheaper. Nokia also plans to bring the cheaper Lumia 610 to China soon.

App support to grow gradually

Carrier backing may not be very tough to garner, but the most significant headwind that Nokia faces is creating an app ecosystem vibrant enough to counter Apple’s and Google’s growing presence. The iTunes store and Google Play boast of more than 650k and 600k apps, respectively, while there are only 100K available in the Windows Phone Marketplace. Nokia and Microsoft are trying to bridge the gap by incentivizing app developers as well as partnering with some of the more popular ones to create exclusive content for the Lumia. [3]

The newly launched Windows Phone 8 could be a watershed moment for both the partners since the OS is built around many of the same core components as Windows 8. Not only will it inherit the rich feature set of Windows 8 such as support for multi-core processors making future Lumia devices faster and sleeker, but also integrate the two platforms closely, making apps developed for either platform easier to port and increasing the user base for app developers. Having a huge user base for its Windows PC platform will help Microsoft generate significant support for the new integrated Windows8/WP8 user experience, driving the sales of Windows Phones such as the Lumia.

Going forward, we expect Nokia’s hardware skills to help it offer well-designed handsets at cheaper prices and thereby undercut Apple in emerging markets. Together with a competitive and unfragmented OS, it will also be able to offer a consistent app experience across its Lumia portfolio, something that the plethora of Android smartphones in the market customized by handset makers lack.

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Notes:
  1. Verizon Is Said To Offer Nokia Windows 8 Phone This Year, Bloomberg, August 22nd, 2012 []
  2. Nokia Windows Phones coming to Verizon soon, BGR, July 9th, 2012 []
  3. Nokia Lumia drives further ecosystem momentum with new app partnerships announced at CTIA, Reuters, May 8th, 2012 []