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Nokia leaves crucial execution details TBD and shares drop after the Lumia introduction
09/05/2012 3:59 pm EST
Sell on the news? Possibly. Nokia’s shares were up 92% from July 17 through August 27. And today’s drop just continues a sell off that began after that August 27 peak.
Disappointment with the phones themselves? Well, maybe a bit—if you were expecting the new Nokia phones to walk on water while whistling and chewing gum. The technology reviews (see one here from Gizmodo http://gizmodo.com/5940654/nokia-lumia-920-hands-on-you-really-want-this-thing++but-enough-to-switch ) have been far and away positive, praising the phones’ look and feel, interface, camera, display, and proprietary Nokia apps. But the reviews have also raised the crucial question of whether or not these pluses are enough to get a significant number of users to switch from Apple’s (AAPL) iPhone or a Samsung (or other maker’s) Android phone.
The big problem, though, with today’s announcement and the one that I think is most responsible for the drop in the stock was Nokia’s vagueness on when these phones will hit the market—and at what price.
It’s not enough to say that they will be available in select markets sometime in the fourth quarter, as Nokia did this morning. It’s critical for Nokia that the phones be available in volume in lots of markets in time for the year-end buying crush. Miss that season and Nokia could flame out in a burst of red ink—the new phones are likely to depress sales of existing Nokia models and if Nokia doesn’t have enough of the 920s and 820s on sale to make up for that drop it will be a huge strain on a company that is already facing big cash drains.
The price issue is almost as important. Nokia’s Lumia won’t have the cachet of the iPhone or Samsung’s newest Galaxy models. To gain traction, to give the phone even a chance of picking up some market share, it will have to sell at a discount to those phones. Will it? Investors don’t know after today’s introduction. And if it does, will the discount be big enough to make some part of the market willing to try a Lumia?
Without answers to those questions today’s product introduction was long on sizzle but short on steak.
Today we know that the product is good enough to be competitive, but we still don’t know if Nokia’s execution will jump that same bar.
I wouldn’t be surprised at all to see Nokia shares dip again new week when Apple launches its new iPhone. And I don’t expect them to have much of a chance to rally until Nokia addresses the big holes in today’s product introduction. If you’re playing this as a swing trade, as I have been, I think it’s at least a week too early to buy.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Nokia as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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