Lumia 900 price-cut could spell trouble

Nokia announced over the weekend that it was cutting the price of its flagship Windows Phone, the Lumia 900, in half in the US.

The price cut comes after the handset was released in the critical US market in April, in an attempt by Nokia to regain lost traction in the smartphone space. The Lumia 900 has been available through AT&T on a $99 contract - which has now been reduced to $49.99.

Nokia has downplayed the price-cut, calling it a “normal strategy” that is put in place during the life cycle of most phones, adding that it "allows a broader consumer base to buy this flagship device at a more accessible price".

However, World Wide Worx MD Arthur Goldstuck says: “There is nothing normal about slashing in half the price of your flagship phone within months of launching it. Nokia has sent a signal to the market that the phone is simply not moving at current prices, which in turn tells us that it has failed to demonstrate its value proposition relative to its major rivals, specifically the Apple iPhone 4S and the Samsung Galaxy S3.”

Goldstuck says the irony is that the Lumia 900 is in some ways a better phone. Key selling points of the handset include its high-speed capacity using the DC-HSPA technology with download speeds of up to 42Mbps (this is, however, not available in the US where the Lumia 900 is an LTE phone), its large 4.3-inch super AMOLED display and 8MP camera.

“The real problem for Nokia is that it is a Windows phone, and the market has not yet been sufficiently educated about its benefits, or persuaded about the quality and performance of its current version, 7.5,” says Goldstuck. “A deeper problem is that Windows 8 is due in October, and Nokia have released their 7.5 phone within six months of the next big OS release.”

Goldstuck says consumers who are aware of the difference operating systems make on their phones will not buy a 7.5 phone knowing the release of Windows Phone 8 is imminent. “And that would be a fundamental reason sales of the Lumia 900 would have come screeching to a halt.”

While the Lumia 900 will be upgradable to Windows Phone 7.8, Goldstuck says the market will still prefer to wait for a genuine Windows Phone 8 device, especially with the anticipated tight integration with Windows 8 tablets and PCs.

“In effect, Microsoft has pulled the rug out from under Nokia with both its timing and its inability to offer an upgrade to Windows Phone 8 on existing devices,” says Goldstuck.

“The bottom line for Nokia is that the current Lumia range cannot yet represent the revival of the brand, tied in as it is to a soon-to-be obsolete version of Windows. Because Nokia has anchored its fortunes to Microsoft, it has to wait for Microsoft itself to revive its image with Windows 8.

“Both companies need Windows 8 badly, but Microsoft, meanwhile, has other market-leading products, like Office, to keep its overall fortunes riding high, and to give them time to get things right. The fact that their share price has remained relatively stable - and up from last year - while Nokia is at a 16-year low, tells the story of their relative fortunes, and why Microsoft doesn't have to bend over backward to keep Nokia happy.”

The Lumia 900 was released in SA less than a month ago via MTN, and Goldstuck says in light of the US price cut, it is highly likely Nokia will follow suit with cuts in other territories.

“You can't have a 50% price differential in the age of the Internet and online purchasing for those who want to pay for the phone upfront. If they are sitting with the same stock issues in SA, then there is little doubt that the contract price will also come down. Some believe Nokia have been conservative in local stock levels, and will probably sell a high proportion of the Lumia 900s they did bring in, on the basis of a small stock holding.”