Is Nokia Pushing the Panic Button?

Nokia (NYS: NOK) just announced that it will soon add a new smartphone to its Lumia lineup, and it will be the company's lowest-priced Microsoft (NAS: MSFT) Windows phone yet. The struggling mobile-phone giant is already best known around the world for its cheap feature-phone handsets, but it's now trying to compete in the boutique smartphone arena with the likes of Apple's (NAS: AAPL) iPhones and Google Android phones. Is the "new" Nokia moving downmarket too quickly?

The same old game
The new Nokia smartphone will be dubbed the Lumia 610. It will cost $250, or 30% less than Nokia's previously cheapest Windows smartphone. At that price, with the discount that mobile-phone service providers kick in for signing a contract, it's likely the 610 will be free.

Throwing even more of its weight behind the Nokia/Microsoft partnership, Microsoft will be getting into the smartphone-selling game itself. The company said it will open stores in 28 countries this spring to sell the whole lineup of Lumia phones. China will be one of those 28 countries.

Of this effort, Terry Myerson, corporate vice president of Microsoft's Windows Phone Division, said: "This will enable many, many more people, especially in China, to be able to experience Windows phones."

On being all things to all people
It's no great mystery why Nokia is introducing this bottom-of-the-line smartphone. Nokia is the world's largest cell-phone manufacturer by sheer volume of handsets shipped, and it knows that game well. The problem is, those handsets are primarily feature phones, the market and margins for which have gotten so pitiful that the more the company ships, the more money it loses. But Nokia is now calculating that it can play the same game with smartphones, only this time, ideally, at a profit.

The danger is that Nokia might squander whatever brand cachet it's rebuilt over the past few months, and it needs that brand cachet to compete successfully against Apple, whose premium smartphone product has the world literally lining up for in record numbers. A free Nokia smartphone might hinder -- in the eyes of a potential customer weighing an iPhone, high-end Android, or Nokia -- what is, essentially, a brand relaunch for Nokia.

To underline my point that Nokia is now trying to be all things to all people, at the same time the company announced the Lumia 610, it also announced a new version of the Lumia 900, the premium smartphone the company built to run on AT&T's 4G network. This new version will be designed to run in markets around the world.

Jack of all trades, master of none?
The other, potentially more positive side side of being all things to all people is that Nokia might stand to make market inroads far beyond what Apple or even Google might be able to make. This business model in general is well established. Ford and General Motors thrived for years by providing a range of cars that hit every price point, from economy to luxury. As consumers did better and better for themselves, they bought better cars. Nokia could theoretically tap into the same marketing and profit vein with a varied lineup of smartphones.

Again, I get what Nokia is doing, but still don't like to see the company dropping down to this level so quickly. The new Lumias are getting good reviews. The sleek and elegant handsets, coupled with the Windows Phone operating system -- an interface that truly distinguishes it from its iOS and Android counterparts -- makes for a very competitive, high-end phone.

In my mind, it's better to solidly establish the brand and then bump down from there. Nokia needs to turn its fortunes around sooner rather than later, but the company's balance sheet is healthy enough that it doesn't need to panic -- which this move smacks of. "Free" equals low quality in the minds of many consumers. Companies don't often get a second chance. Let's hope Nokia makes the most of this one.

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At the time thisarticle was published Fool contributorJohn Grgurichwould love to visit Nokia HQ in Finland and check out some reindeer, but he owns no shares of the companies mentioned in this column.The Motley Fool owns shares of Microsoft, Google, Ford, and Apple.Motley Fool newsletter serviceshave recommended buying shares of Nokia, Google, General Motors, Ford, Microsoft, and Apple, creating bull call spread positions in Apple and Microsoft, and creating a synthetic long position in Ford Motor. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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