MKM Partners downgraded Nokia Corp. (NYSE: NOK) Wednesday morning after its research suggested that initial range of Lumia Windows phones from the vendor is "not a company saver."
MKM Partners analyst Michael Genovese writes in a report that the Nokia Lumia models were "typical hot phones" for a few weeks in retail stores but have now been supplanted by the latest Android models from High Tech Computer Corp. (HTC) (Taiwan: 2498) and Samsung Corp. :
The first thing we noticed in our late-May retail store checks is that the Lumia "hero" displays that were prominent in T-Mobile stores two months ago and AT&T stores one month ago are now largely gone. Store clerks overwhelmingly told us that they promote Samsung Galaxy and HTC One models, with many reporting that they use these phones themselves. The retail reps most often cited the large gap in available applications as the primary reason to choose Android over Windows.
Genovese finds that the devices did not ignite strong consumer interest in Windows phones in the U.S. or Europe. "We do not find that there has been a significant positive inflection in global Windows Phone demand, and we are skeptical that Windows 8 handsets and tablets, to be launched later in 2012, will make much of a difference," the analyst says.
Why this matters
Nokia is hanging its future development on making current and future Windows phones massive sellers worldwide. These further signs that the strategy is -- at the least -- taking time to take off is more bad news for the company.
Indeed, MKM Partners now suggests that Nokia's key value is now in its IP portfolio, not its handset business. "Our new price target of $2 per share is based on our estimate of the value of the company's intellectual property, which we peg at slightly more than $7bn," analyst Genovese writes. "We assume no value for the handset business and no value for the roughly €4bn in net cash, which Nokia could potentially burn through in the next two years."
AT&T promised the biggest marketing push ever for the Lumia 900. Guess that was pretty shortlived. They forgot to say, "until something better comes along!"
Isn't Microsoft already paying developers to build for Windows Phone? That's pretty bad then. I've heard Microsoft is not easy to work with though (straight from Microsoft itself), which is the #1 obvious thing they should change.
Nokia shares are down more than 6% to $2.77, giving it a market value of $10.3 billion.
If Genovese is accurate with his valuation of Nokia's IPR at $7 billion, then that means the company's cash and ongoing business is currently valued by the markets at $3.3 billion.
Nokia currently has 4 billion euros ($5 billion) in cash... the analyst thinks it will pretty much burn all that and the stock be worth only $2.
While that me be ovely pessimistic, it is still a shocking analysis.
If Microsoft can help Nokia out of this hole it will be worthy of some sort of award.
I'm not an analyst and I said the WP7 handsets wouldn't save Nokia but will actually destroy Nokia. The facts were in plain sight. Nokia saw year over year growth with Symbian handsets, just not at the % Apple and Android were seeing. From 2009 to 20010 Nokia shipped 33 million more Symbian smartphone; so they went from 100 million to 133 million. That was far from a burning platform. They also had around 50% of the market in Germany, now they have around 3% with WP7. The burning platform was WP7. Nokia was headed in a direction that would have built an ecosystem; Qt. They were going to run it on the S40 replacement, Symbian and MeeGo. The same core app could run all three platforms. The only difference would be the install file; the app would be the same. Having hundreds of millions of compatible devices would entice developers would it not? Look at the N9, it outsold WP7 from all manufacturers for a quarter. A phone Nokia tried to bury beat their new "flagship" OS. Elop needs to go and the board can no longer look the other way. WP7 was a bad idea from the start how long can they possibly believe that magically the consumer will want WP7 when they have been rejecting it for nearly two years now?
Did AT&T market it? Yes, but eventually you have to toss the towel in and move on. If the consumer doesn't want it, you sell them something they do want. Quarter after quarter it has not been WP7. Nokia sold 2 million WP7 devices in Q1. Compare that to Q1 of 2010 for Symbian sales from Nokia; 21.5 million. If Nokia sold 2 million WP7 every single quarter and added them up, it would still be only ~40% of what Symbian was every quarter.
If Nokia wants to save itself, it is time to dump WP7 and move on. The hole Nokia is in was created by Elop and Microsoft.
The final fact, even their current customers have rejected WP7 in droves. Where are the sales? So they have alienated their current customer base in favor of one that had 3% of the market and still does. Call me crazy but isn't 33% year over year growth better than 0% when it comes to an OS?
Nokia has put themselves in a very bad position. Going forward is not an option, at least not on their current plan. If they want to continue to sell WP7 handsets, go ahead, but it cannot be their only platform they support. To be honest, they need to beg for forgiveness and bring Symbian back in-house and start pumping phones out and do the same for MeeGo/Maemo. They ***might*** get existing customers back. If they could get 50% of tem, that would be a good start. Right now, they basically have retained less than 3% with the switch. Most of their WP7 sales have been at the cost of HTC, Samsung and LG. The market share has not really grown all that much with the entrance of Nokia. Nokia Belle is what Nokia needed pre-WP7 and MeeGo definitely kills WP7. Nokia is looking at a new feature phone OS, to be honest, Belle would be good there as well as low-end smartphones and possible the mid-range. Use MeeGo/Maemo for the top and they are set. Use Qt and while you still would need to provide a different app for each; mainly for the installer, the actual code base would be the same. Belle and MeeGo both got favorable reviews and it was most likely the intention of Nokia to Qt on both so they could share the same apps. There are a lot of Qt developers out there as it is widely used.
Right now, Nokia is just digging its grave deeper and deeper every single day. It would be a miracle if Microsoft can pull their plans off. WP7 will be replaced by Windows 8. Existing WP7 apps will run on Windows 8. The desktop apps will not run on the ARM variant of Windows 8 or vice-versa. Microsoft is also going all in with metro which has drawn mixed reactions. More are saying now than yes to it. So where does that leave Windows 8 on ARM? Will tablets be enough to make Microsoft the third ecosystem? I surely don't think it will, sure they might see more than 3% on the smartphone side, but I doubt it will ever even reach 10%. Microsoft is betting that desktop users will buy a Windows 8 tablet and smartphone. I don't; what you run on the desktop doesn't dictate what you run on a tablet. There are many who own an iPad but not an iPhone or even a Mac. How many iPad customers are running Windows? Even if you use a Mac, you don’t run your desktop apps on the iPad; just like Windows 8 won't allow it either; different architecture. I can see WP7 users buying a Windows 8 tablet though. So enjoy that 3% Microsoft.
Nokia could also do a partnership with RIM. If RIM wants to do their own OS, then let someone else do the hardware. I said years ago that RIM should just leave the hardware business and create the client for the phone instead. They didn't and how many smartphones support MfE? This has left RIM in a very bad position. Nokia offered a BB client for their E-Series, not all features were there and it was something RIM could have easily fixed. RIM just viewed it as a threat to the hardware side. The market moved on and left RIM behind, so the biggest threat to RIM was RIM itself.
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