Nokia’s (NYSE:NOK) Lumia line could have a much bigger presence in China soon. While all the talk in the past week has been about the Lumia Windows Phone 8 launch in the U.S. on both AT&T (NYSE:T) and Verizon (NYSE:VZ), Nokia seems to have pulled off a major coup by getting China Mobile (NYSE:CHL) on board to sell the Lumia 920.
China Mobile, which is China’s largest wireless carrier, recently used its Sina Weibo page to reveal details about the Lumia 920T, a custom-built Lumia Nokia has made for the carrier with TD-SCDMA support.  The carrier said that the flagship Lumia device will arrive in China with a dual-core Qualcomm (NASDAQ:QCOM) S4 Pro chipset and an advanced Adreno 320 GPU (Graphics Processing Unit) as opposed to the previous-generation Adreno 225 found in the international variant Lumias. With the world’s largest subscriber base of close to 700 million and a 3G penetration of only about 10%, China Mobile presents a huge opportunity for a popular emerging market brand such as Nokia.
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 $4.50 price estimate for Nokia, about 70% ahead of the current market price.
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Nokia has carrier backing
The need for more competition in the smartphone market, not only in terms of 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 of 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 marketing push ensured that the Lumia 900 was among the top three best-selling handsets at AT&T until July, a period of four months since launch.  With the Lumia WP8, Nokia has gone a step further and added Verizon to the list as well. In order to garner more marketing dollars behind the Lumia brand, Nokia is offering carriers exclusive access to different custom-built Lumias. With different Lumia models, carriers will look to differentiate themselves from competitors better and try to make the most out of the ‘exclusivity’ they have over their respective Lumias.
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 ~19%, 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 earlier this year. China Mobile is in need of a flagship smartphone that it can actively market in order to promote its 3G network, an area where it has lagged its competitors. (see China Mobile Needs To Step Up As 3G Growth Slows) It is pursuing an Apple deal, but the Chinese government’s discomfort with the huge subsidies associated with the iPhone could be a big deterrent. However, it may not be long before the iPhone arrives on China Mobile, so Nokia will be looking to the make the most of the opportunity while the sun shines.
Still, 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. Going by Nokia’s aggressive pricing of the Lumia 920 in the U.S. ($450 unsubsidized as compared to $650 for an iPhone), we believe the company will be playing by the same rules in China as well.
WP8 has essential ingredients for success
Overall, the Lumia has seen decent traction build up with carrier support in the U.S. and China helping Nokia sell about 11 million units in all, with sales doubling in the first three quarters since launch late last year. However, where carrier partnerships have not been hard to come by, getting people to warm up to the Windows ecosystem has proved increasingly tough considering how well-entrenched Android and iOS have become as mobile ecosystems. The iTunes store and Google Play boast close to 700k apps respectively while there are only about 120K available in the Windows Phone Marketplace.
This is where WP8 offers both Nokia and Microsoft their best chance to find a place in the growing mobile market. While building Windows 8 and WP8, Microsoft ensured that both share the same kernel and therefore inherit the same rich feature set that has made Windows a household name in the PC industry. This has helped integrate the two platforms closely, thereby making apps developed for either platform easier to port. Having a huge user base for its Windows PC platform will therefore help Microsoft generate significant support for the new integrated Windows8/WP8 user experience, from both developers and users alike, thereby driving the sales of Windows Phones in general and the Lumia in particular.Notes:
- Nokia Lumia 920T has Adreno 320 GPU instead of Adreno 225, GSMArena, November 9th, 2012 [↩]
- Apple’s iPhone 4S is no longer the top-selling smartphone in the U.S., BGR.com, September 4th, 2012 [↩]