Circle your calendars for March 28. That's when investors will
start to talk about the biggest growth opportunity for smartphones
in the months and years ahead.
On that day,
China Unicom (
CHU
)
,
China Telecom (
CHA
)
and
China Mobile (
CHL
)
plan to roll out a new phone to counter the growing strength that
Apple (Nasdaq: AAPL)
and
Google (Nasdaq: GOOG)
are showing in themarket . These wireless carriers don't want to
become beholden to these tech giants, and have expressed a desire
to make sure the
market
for phones remains truly competitive.
Their Trojan Horse:
Nokia (
NOK
)
and its new line of Lumia smartphones.
Within a few days of that launch, we'll have a clearer read on
whether these mobile phone titans (which collectively sport a $300
billionmarket value ) can convince consumers to make a switch.
For many Chinese consumers, the choice of a Nokia phone may be a
no-brainer. The company aims to deliver a range of phones that are
less expensive than the iPhone, or pack in more features for the
same price. At a recent investment conference, Nokia's CFO, Timo
Ihamuotila, noted that an unsubsidized iPhone retails for roughly
$775, roughly $200 more than for what Nokia's equivalent version of
the Lumia phone retails ($580). The Lumia 710, for example, can be
sold -- at a niceprofit -- for less than $400. That's the price
point likely to best be able to expand the Chinese market.
That market is growing so quickly, it is expected to be larger than
the U.S. market by the end of this year. Here in the United States,
Nokia appears to be off to a fairly solid start with T-Mobile, and
a launch with
AT&T (
T
)
serves as the next domesticcatalyst .
I ran through some of these issues when I first added Nokia to my
$100,000 Real-Money Portfolio
less than a month ago
. The coming launch in China and the steady rollout in the U.S.
don't change the facts on the ground: Nokia still has so much to
prove. Indeed, there's a good chance that the company has only
moderate success. Apple and Google are such great companies and
will surely fight back hard against anymarket share losses. But I'm
no longer seeing this as a Nokia vs. Apple and Google battle.
Increasingly, I see Nokia targeting areas of the market that are
simply below Apple and Google's radar, what the company calls the
"next one billion" (consumers). The company is paring costs
aggressively so that it can make a
profit
by going after the bottom of the market.
GE's (GE)
widely-respected former Chairman andCEO Jack Welch once said that
companies should only tackle markets in which they can dominate,
citing a study that the No. 1 player has twice the profit margins
of the second player, and the second player has twice the margins
of the third player. In this instance, I think he's wrong. There's
room for three at this table.
The fact that
Microsoft (Nasdaq: MSFT)
is pulling a lot of weight in terms of brand-building for the new
Windows mobile phone software that underpins Lumia is a real plus.
Microsoft has tried and failed before to make a major dent in this
market, but the current efforts appear to be winning a lot more
buzz. What will thatmean for consumer demand? We'll soon find out.
Risks to Consider:
Nokia's management must prove not only that Lumia phones are
winning converts, but also that the company is making money on the
phones.
Action to Take -->
I'm getting closer to building on my modest 800 share position in
Nokia. Counter-intuitively, I'd like to seeshares move a bit higher
before doing so, as that signals broadened support from the
investment community.
A few weeks ago, I suggested to my
$100,000 Portfolio
readers who trade alongside me that a stop-loss be put in place at
$4.50, but now think $5 is more suitable, as
shares
have moved up a bit. Indeed, if shares move up past the $6 mark,
you should move your stop-loss up to $5.50 (as I'll be doing) since
there are still risks in thisbusiness model .
There's an ample amount of media coverage to peruse about the
imminent China and U.S. launches. If you own this stock, then it's
imperative you stay informed for signs of any sales strength or
weakness as the rollouts unfold.
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of NOK, MSFT, GOOG, ABT in one or more if its "real money"
portfolios.