NOK, RIMM, AAPL: Why Nokia’s Price Cut for Lumia is a Bigger Threat to RIMM than Apple?

Jul 16, 2012 9:06:40 AM PDT | 2299 View(s) | No Comment(s) - Post a Comment Rating 4

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Nokia Corporation (NYSE: NOK) used the weekend to make a big splash by reducing the price of its Lumia 900 smartphone to just $50 under a new two year contract with AT&T. Lumia is a great phone and Nokia has added some great features recently to make it even more appealing but the latest move is unlikely to bring any wrinkle on Tim Cook’s forehead. More than Apple Inc (NASDAQ: AAPL), Nokia’s price cut for its flagship smartphone will create pressure on Research In Motion (NASDAQ: RIMM).

It has been hardly four months the Lumia was on the market and a 50 per cent price reduction comes nothing less than a shocking development. However, when viewed a little more closely, there is ample reason for the company to undertake this massive price reduction. It was now becoming clear that the smart phone would not be getting Windows Phone 8, Microsoft’s next generation version of its new mobile platform. Although the smartphone would still be getting an upgrade to 7.8 which will be launched after the Windows Phone 8, it is a dead end after that. Nokia’s approach of milking the lower end of the market is nothing new in the trade, although it is a little too fast.

At an upfront payment of $50, Nokia Lumia 900 is one of its kinds and even though users would not be able to get updates of some of their favorite apps, Nokia will find enough takers at this price. At the same time, it is no threat to Apple’s iPhone which continues to enjoy strong demand at substantially high price.

What Lumia 900 does manage to challenge may be Research In Motion’s (NASDAQ: RIMM) once ubiquitous and now fast becoming extinct smartphones. Enterprises - RIMM’s last bastion – have already been dented by Apple but a mass exodus to iPhone never took place because of the latter’s prohibitive prices. However, this may just be the opportunity Nokia needs where it can build upon the initial momentum created by Apple. Nokia will need to play on price, keeping margins wafer thin, but it has given indications it is ready for the wild ride.

Overall, it is one of Nokia’s last chance to survive (and possibly thrive) and the company is going by the book in this case. AT&T also stands to benefit from the price cut while AAPL is out of question. The real casualty could very well be RIMM.