The Hint That Drove Nokia to New Highs
When Nokia CEO Stephen Elop said in an interview with CNET that the company "is planning a lot of exciting things with Verizon" , the stock climbed to an eight-month high during Tuesday's trading session. Shares closed up 6.3% to $4.20.
While no more specifics were given, the hint was sufficient to drive the shares higher, presumably under the assumption that the nation's biggest 4G LTE carrier will get some version of the company's flagship Lumia 920 that runs on the Microsoft Windows platform. Given the exclusive relationship that Nokia established with AT&T , the details of the Verizon launch are critical. While I am hesitant to buy stocks on the heels of big pops, Nokia has plenty of room to the upside.
The decision by Nokia to opt for an exclusive sales arrangement is not the first time that such a decision has been made in the hopes of great success. Apple , as we all recall, originally launched the iPhone with AT&T to the exclusion of all other carriers. When Elop was asked about the decision to limit the availability of the flagship Lumia 920, he gave the company's perspective:
One of the things we had learned with the first launch was being very narrow would yield better results for us. We take a product and go exclusive with a particular carrier. In a market where subsidy and marketing dollars are heavy, we encourage them to promote it as a hero product, and use the subsidy to drive down the pricing to a competitive point. It also gives you access to in-store resources.
Obviously, the idea of a "hero product" can be a critical selling point for a particular device. Just as the iPhone has been that hero product for Apple (which is a foregone conclusion given Apple's limited product range), on the Google Android side of the world, the dominant hero product role has shifted between multiple cast members -- the Motorola Droid line and certain models from HTC have held top spots, though Samsung now holds the honor. According to a recent Gartner release, "The Galaxy S3 was the best-selling Android product in the quarter."
Both AT&T and Verizon have long-established their respective skill at retaining customers. AT&T's experience at hyping an exclusive flagship product may have influenced the decision, but it is likely that the terms reached between Nokia and AT&T played a role as well. Despite the popularity of AT&T's 4G LTE coverage, it cannot match Big Red in breadth -- Verizon covers roughly four times as many markets than AT&T. Given this disparity, AT&T may have been more anxious to reach favorable terms.
A new hero
While Elop praised the virtues of his company's relationship with AT&T, he made clear that Nokia is not sitting still to watch as things develop:
There might be another similar hero exercise with a different operator. In this particular moment, the opportunity with the Lumia 920 presented well with AT&T. And we're pleased to have just restarted our relationship with Verizon.
The recent victory scored by Nokia to bring the Lumia 920T to China Mobile and its 700 million total users led to both a Nokia pop and a painful drop in Apple shares. The introduction of an increasing broad U.S. base would be significant victories for both Nokia and Microsoft. Each of these companies once held the dominant positions in their respective fields and is looking to return to important roles. As Microsoft looks to expand its Windows phone reach with HTC, solid distribution for Nokia, coupled with the first-mover advantage, may prove critical.
Can Nokia keep running?
The question that investors must ask is whether Nokia's stock can continue its impressive run higher. The Verizon news, while certainly a catalyst for a pop, is hard to quantify before you know what offering from Nokia will be available on the Big Red network. In any event, the important holiday retail season will not be a part of the company's sales numbers on Verizon. Arguably one of the best pieces of news for Nokia has been the perception of continuing struggles for Apple. While Nokia shares have enjoyed an impressive run, they look to have additional upside and I consider them a buy at current levels.
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The article The Hint That Drove Nokia to New Highs originally appeared on Fool.com.Fool contributor Doug Ehrman has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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