Microsoft Follows Purchase Of Nokia Phones With Lumia Price Cut

Chris Lau, Kapitall: The Lumia smartphone, already powered by Windows, is now owned by Microsoft. And they're making it cheaper.

Demand for what is now  Microsoft’s (MSFT) Windows-powered premium Lumia smartphone may rise in the near future, thanks to a price cut and an unmatched camera. This might also help Microsoft shares, which have pushed into the $30-36 range since July. Microsoft will be hoping sales increase before it reports earnings on October 14. Nokia (NOK), which sold its devices unit to Microsoft, could also benefit from the positive strength in sales of Lumia.

Price cut

A price cut is likely to boost customer interest in Lumia smartphones. Microsoft announced that it lowered the price of the Lumia 1020 to $199, down from $299 on a 2-year contract with AT&T (T). Microsoft is even throwing in a Nokia camera grip, which it says is worth $79.

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AT&T shares have been mostly flat in the last six months, compared to Microsoft and Nokia. AT&T offers a $1.80 per share dividend, which is a yield of 5.24%.

Click on the interactive charts below to see data over time. Sourced from Zacks Investment Research.

Great features

At a lower price point, consumers previously not interested in the Lumia 1020 might consider the phone’s feature set. The 1020 has a better backside illumination sensor, optical stabilization, six lens elements, and a 1280×720 screen.

Competition

No other smartphone maker compares to the Lumia 1020’s camera, but Sony (SNE) is close. The conglomerate and maker of Android smartphones developed a QX10/QX100, which supports an attachable lens-style camera.

Sony shares are outperforming Microsoft over a one year period. This can be partly attributed to shareholder activism, calling for the company to split its entertainment unit to raise the value of its shares:

Risks

The price cut could indicate that sales are not doing as well as Microsoft and Nokia had hoped. And Sony could prove to be a bigger competitive threat to Microsoft’s Lumia. Despite the risks, Microsoft may raise its marketing budget to promote the Lumia. If Microsoft gets the Lumia 1020 on all other carriers, including Verizon (VZ), T-Mobile (TMUS), and Sprint (S), it could gain smartphone market share, boosting its Windows Phone operating system.

(Written by Chris Lau, a Kapitall contributor. All data sourced from Zacks Investment Research.)

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