Microsoft and Nokia Ready to Change the Game

When well-known entities like Nokia and Microsoft hitch their respective wagons together, there's bound to be high expectations. In this instance, with its steadily declining market share, Nokia literally put its corporate life on the line with the introduction of its high-end Lumia 920 running Microsoft's Windows phone OS.

Microsoft has a lot of skin in the game, too. Widely criticized for showing up to the mobile computing party late, the success of Nokia's Lumia would go a long way toward easing the concerns of Microsoft investors. Now, with plans to introduce a Lumia in the $150 range, sans a subsidy mind you, Nokia and Microsoft just took a major step in the right direction.

Nokia's market share decline
It's no surprise that Samsung continues to lead the global mobile phone sales race, as it did, again, during the first quarter of this year. According to research conducted by Strategy Analytics, Samsung stretched its lead in Q1, selling a whopping 106.6 million phones; up from a mere 92.5 million last year. Samsung's gains are coming at the expense of Nokia, among others. Though Nokia remains the number two mobile phone seller worldwide, its market share declined to 16.6% in Q1, down from 2012's 21.9%.

Before Nokia fans lose sleep over the downward trend in unit sales, there are a couple of factors worth considering. First, with Nokia's transition to running Windows OS, its old-school symbian OS phones were always going to take a sales volume hit -- that's not a surprise. Also, new phones running a brand new OS takes time to gain sales traction, and for Nokia watchers, there are some positives. Nokia's recent quarterly sales of 5.6 million Lumia's in Q1 came on the heels of the prior quarter's 4.4 million.

Another factor impacting the success of the Microsoft/Nokia partnership is the market that the Lumia targets: the high-end smartphone user. Apple dominates with its iPhones, particularly in the U.S., and, of course, Samsung is no slouch either. Apple's 43.7% share of the domestic smartphone OS market is a big mountain for upstarts like Nokia to climb. But the latest domestic OS numbers aren't all bad for Nokia and Microsoft, as this recent article indicates. With 5.6% of U.S. smartphones running Microsoft's OS, much of which can be attributed to Nokia, it's certainly trending in the right direction.

The Lumia 521
The latest Lumia phone with a Windows 8 operating system could prove to be a windfall for both Nokia and Microsoft. While the Lumia 920 directly competes with Apple's iPhone and the high-end Galaxy, the Lumia 521 is whole new ballgame. Early results from last week's Home Shopping Network (HSN) indicate sales are good - the 521 sold out - and reinforce the notion that there's a market for inexpensive, feature-rich smartphones that don't require costly, multi-year data contracts.

News that Wal-Mart will begin selling the Lumia 521 this month for less than $150, and package it with a $30 a month unlimited text and data plan from T-Mobile, give Nokia and Microsoft investors plenty of reasons to get excited. As the head of Windows phone unit Terry Myerson put it: "There is an opportunity for us to offer a very high quality device in the mainstream. That's where we've made progress in the last couple of months and it's a strategy we'll continue to explore in the United States." And what's good for Microsoft's Windows phone OS is good for Nokia. With an 80% share of all Windows phone OS sales, Nokia blows HTC (another manufacturer with Windows OS phones) out of the water.

The mid- and low-end feature-rich phone market has a huge upside, and not only in emerging markets starved for mobile and smartphone alternatives that won't break the bank. U.S. consumers have gotten spoiled with subsidies bringing the cost of smartphones down to manageable levels, but that's not the case in many international markets. And if T-Mobile USA's shift to selling non-subsidized phones takes hold, options like Nokia's Lumia 521 could fly off the shelves.

It's just one phone, but the Lumia 521 could change consumer's expectations going forward. If you're sitting on the fence wondering whether Nokia or Microsoft warrants your consideration, the Lumia 521 is one more reason to answer "yes."

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Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple 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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