With Stakes High, Nokia Bends for Lumia Users

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- Barely have the wraps been taken off the new Lumia 900 before a glitch has surfaced with the phone that is causing a loss of data connectivity.

To Nokia's ( NOK) credit, they not only acknowledged the issue just two days after the launch but also promised a quick software fix for the bug by April 16. Moreover, the company is also offering to credit the AT&T ( T) accounts of all those who buy the Lumia 900 before April 21 with $100 as a goodwill gesture. If one needed further proof of how important this launch is for Nokia in the face of increasing competition from Apple's ( AAPL) iPhone as well as Android smartphones, this is it.

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Do or Die for Nokia

The $100 credit effectively makes the smartphone free with a two-year contract. Given that Nokia is willing to eat the cost in order to get the phone in as many hands as possible is a strong indicator of how desperately Nokia needs Lumia to give some life to its sliding brand. Only three years back when Nokia was at its peak, it commanded a market share of more than 25% in developed markets. Growing popularity of competing smartphones such as the iPhone and Android based ones has since forced Nokia to exist the U.S. and the figure has slumped to less than 18% in 2011.

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A big reason why Nokia failed to stand up to the emerging competition was that it couldn't come up with a software platform that could address the changing needs of its customers. While competitors Apple, Samsung and HTC either developed a smartphone OS of their own or jumped on an open source mobile software developed by Google especially for smartphones, Nokia chose to stick to its older Symbian platform. The bet proved costly for Nokia as its Symbian smartphones fared poorly in the marketplace and Nokia lost significant market share.

However, now with Windows Phone, Nokia finally has a smartphone operating system capable of standing up to iOS and Android and giving it a fighting chance to stake a claim on the lucrative smartphone market. In Microsoft, it has a deep-pocketed partner that is as desperate as it is for a bigger share of the market.

For its U.S. foray, AT&T has proved to be more than a willing partner as the carrier searches for a third mobile ecosystem to quell the growing dominance of Android and iOS.

The close partnership between Nokia and Microsoft has helped them in tightly integrating software and hardware, which has reduced component costs while not compromising on the user experience. This is what has helped Nokia set a lowly $450 price on the high-end unsubsidized Lumia 900 without taking a big hit to margins.

Where the Windows ecosystem might fail is the lack of apps, which play a big role in attracting customers to a smartphone. However, Nokia can take heart from the fact that even Android was slow out of the blocks in garnering developer support for its platform.

What Android has shown is that for developers to jump on a platform, they must see it being adopted by smartphone users in large numbers. So, it is crucial that Nokia reach that critical mass by getting the Lumia into as many hands as possible.

In this respect, the online Lumia sales have so far been heartening with the phone topping Amazon's best-seller charts since its launch on Sunday despite the data connectivity concerns.

Also, in its preliminary guidance for the second quarter of fiscal year 2012, Nokia said it has sold 2 million Lumias worldwide, about double the previous quarter. So, while it may be a tough period of transition for Nokia as the company shifts its focus from Symbian to Windows Phone, its new Windows Phones are gradually gaining traction and should help it stem market share losses over time.

Our price estimate for Nokia's stock is $6.50, about 20% ahead of market price.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.