Stocks to watch on Tuesday: CE, IEX, SONC >>> READ MORE

Why Did Nokia’s New Smartphone Announcement Draw Boobirds?

The Lumia 925 is an improvement, but only a minor one


Some companies go on a streak where it seems they can do no wrong in investors’ eyes … and others get stuck in a rut where no matter what they do, the market reaction is negative.

2012-era Apple (NASDAQ:AAPL) is a perfect example of the former, when its stock rose more than 50% in value in just six months. Nokia (NYSE:NOK), on the other hand, has become the poster child for the latter scenario.

Its losing streak continued this week when the announcement of its new Lumia flagship smartphone — a highly anticipated (and positively reviewed) aluminum-bodied device that’s significantly thinner and lighter than its predecessor — was greeted with a 5% drubbing of its stock.

What’s going on here? Last year’s flagship Lumia 920 got off to a bit of a rocky start thanks to some marketing controversy, but turned out to be a solid seller. Nokia ended up moving 4.4 million Lumia smartphones over the holidays and upped that to 5.6 million in the first quarter of this year.

That’s impressive for Windows 8 phones. According to figures from Gartner, Microsoft’s (NASDAQ:MSFT) mobile platform sold nearly 6 million devices in Q1 (for a 2.9% market share), meaning that Nokia’s Lumia line accounted for about 93% of all sales in that segment.

Most of the criticism leveled at the Lumia 920 involved its weight, thickness and bright-colored plastic body. The new Lumia 925 addresses those concerns. The front faceplate is made of aluminum, the better to compete with the look of Apple’s iPhone 5 and HTC’s One. The display has been upgraded from LCD to OLED (for brighter colors and deeper blacks). The 925 is slimmer than its predecessor, and at 4.9 ounces, it’s 25% lighter.

So why the negative market reaction?

Investors have been unhappy with Nokia for a long time. While the new Lumia 925 looks to be solid phone and will likely do even better as a flagship than the Lumia 920 did, Nokia still has problems.

The company has been under fire for the decision to stick exclusively with Windows instead of embracing Android. Even though Windows Phones showed the strongest growth of all mobile platforms last year (up 120% in 2012) and are within striking distance of overcoming BlackBerry (NASDAQ:BBRY) for third place, Windows smartphones still represent a tiny slice of the market.

Windows Phone devices lack the apps, the developer support and the sheer market share of devices running Google’s (NASDAQ:GOOG) Android. Nokia is including Windows apps itself — notably a powerful new SmartCam app — but that’s not enough.

Other obstacles include:

As for the new phone itself, it reuses many of the same guts as last year’s model, meaning there’s a slight camera improvement (a new glass lens) and the same CPU.

In other words, it looks as though Nokia investors — not unlike Apple investors who seemed unexcited by the iPhone 5 — were looking for a new smartphone with more of a wow factor than the Lumia 925 delivered.

Yes, it is a very nice phone and includes many of the improvements analysts and consumers had been clamoring for, but flagship phones have to introduce major improvements on all levels these days. Introducing a new premium model sporting the same CPU and display resolution as last year’s version is not going to help sales.

Cutting an exclusive distribution deal with the nation’s fourth-largest wireless carrier instead of opening up sales to all U.S. carriers is going to do nothing to boost Nokia’s market share in this country.

And while sticking with Windows Phone 8 may pay off in the long run — if Microsoft can continue growing its platform — for now, Nokia’s strategy means much fewer apps, less interest from developers, and the perception by many consumers that its smartphones are unable to compete with the best from Apple, Samsung and even BlackBerry.

If Nokia had announced the Lumia 925 would be spec bumped, running Android and available through not only T-Mobile, but also AT&T (NYSE:T), Sprint (NYSE:S) and Verizon (NYSE:VZ), NOK would likely have been up 5% instead of down. But the smartphone Nokia is releasing, combined with its limited market and the backdrop of a declining overall business pretty much assured a negative investor reaction.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC