Nokia's Nightmare Continues - Analyst Blog

Recently, The Wall Street Journal reported that Nokia Corp. (NOK) has decided to cancel the U.S. release of its newly developed X7 smartphone. X7 was slated for release with AT&T (T) probably by mid-February. This was Nokia's first venture in the U.S. with a giant telecom carrier partner. 

What is more surprising is that it was Nokia -- and not AT&T -- which cancelled this deal. Although Nokia officially declined to comment, The Wall Street Journal predicted that Nokia sensed a lack of marketing and subsidy support from AT&T.

In the U.S., the handset makers launch their products with one or sometimes more than one carrier. The carriers provide subsidy to the handset makers, which help them to keep handset prices low and competitive. Additionally, telecom carriers also provide market promotion to those phones based on their own perception.

A firm carrier partner agreement is a precondition in the U.S. for the commercial success of any mobile phone. For smartphones, this is a necessary condition since these feature-rich phones are very costly for which carrier subsidy is required to offer a competitive price.

A major concern for Nokia is its utter failure to understand the importance of the carrier-manufacturer partnership in the U.S. That is why the company is being increasingly marginalized in the lucrative U.S. market by Apple Inc. (AAPL), Research In Motion Ltd.  (RIMM), and several newly launched smartphones using the Android software of Google Inc. (GOOG).

We believe the introduction of X7, running on upgraded Symbian 3 operating system, with AT&T could have paved the way for Nokia to find some meaningful foothold in the U.S. Now the company has to depend on its N8 smartphone for the U.S. market at least in the near-term. However, lack of carrier partnership makes N8 a costly ($469) device compared to the average prices of ($200-$250) iPhones and Android-based phones.

We maintain our long-term Neutral recommendation for Nokia. Currently it is a short-term Zacks #3 Rank (Hold) stock.

 
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