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Lumia’s Successes and Challenges

A product of Microsoft and Nokia’s partnership, the smartphone has done well overseas but will face major headwinds in the U.S.


Days before Nokia (NYSE:NOK) announced its partnership with Microsoft (NASDAQ:MSFT), in February 2011, an internal memo from the Finnish phone maker’s then-new CEO Stephen Elop to his employees was leaked to the press. Elop said that Nokia, still the world’s biggest mobile phone maker, was “standing on a burning platform” as the global market swiftly transitioned to smartphones.

At the time, the partnership with Microsoft seemed a milquetoast move. It was too little effort to diversify too late on Nokia’s part. For Microsoft, it was a sign of desperation, evidence that it would do anything to get Windows phones on the market. Fast forward nine months. Nokia and Microsoft release their first Lumia smartphones in the U.K., India, and elsewhere around the world, testing the waters ahead of tackling the U.S. market. Did they fail as expected?

Far from it. According to a report published on Tuesday by Bloomberg, Nokia and Microsoft sold approximately 1.3 million Lumia smartphones in the international market at the end of 2011.

The figure isn’t exact—it’s an average of estimates from 22 analysts, whose early Lumia sales projections range between 800,000 and 2 million across November and December.  Lumia sales anywhere within that range won’t exactly have smartphone heavyweights like Apple (NASDAQ:AAPL) worried. After all, Apple sold 1 million iPhone 4Ss before the phone was even released in October. Nor does it make Nokia a threat to Samsung (PINK:SSNLF), which sold almost 35 million smartphones during the fourth quarter thanks to the popularity of its Google (NASDAQ:GOOG) Android devices.

The upcoming U.S. market test

These early Lumia sales are a success, though. While rumors suggest sales of the company’s older smartphones continue to slump—rumors that drove Nokia shares down 8% in early Tuesday trading—the Lumia’s international release will help brace the company after two quarters of substantial dips in its smartphone business. Morgan Stanley predicts Nokia sold around 20 million smartphones over the fourth quarter, a significant recovery from the fewer than 17 million it sold in Q3 2011.

How will Lumia perform in the U.S.? The Lumia 900, Nokia and Microsoft’s high-end model intended to compete with Apple’s iPhone 4S, will release on AT&T‘s (NYSE:T) network in April. The industry is enthusiastic about the model, giving it 13 awards at the International Consumer Electronics Show earlier in January. Microsoft plans to back it with a $100 million marketing push across the spring, so U.S. consumers will at least know that the Lumia is out there when it releases.

The phone faces steep challenges, though. Its exclusivity with AT&T could turn customers away given the telecom’s still-spotty service reputation. Apple also has a history of releasing new iPhone models during the second quarter of the year. While those releases typically come in June, early hype for the rumored iPhone 5 could inspire consumers to save their money for a future release. If the Lumia 900 is going to capture Microsoft and Nokia both the mindshare and sales they crave, it’s going to need to be aggressively priced.

The Lumia’s off to a good start, but that momentum is going to be difficult to maintain.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.

Article printed from InvestorPlace Media,

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