Nokia Slashes Lumia 900 By 50 Percent; Death Spiral Confirmed!

The death trajectory continues for Nokia (NYSE:NOK) on news that the company has slashed the price of its Lumia 900 by 50 percent in the US after a lacklustre rollout of what should have been its life buoy. Let me be absolutely clear here. This is a catastrophe and signals that the company has no pricing power and consumers are not buying Nokia's smartphones.

I know this is shameless self-promotion again and a repetition of prior comments, as I have called the downturn of Nokia many times during the last one-and-a-half years. With news of cutting prices on Lumia, the probability of Nokia ending its days as an independent mobile producer is fast approaching certainty. The market seems to agree as the share price is down 66.6 percent in the last year (see chart below) and 95 percent since the recent peak in 2007. I cannot see what could change this trend. Developers are leaving the company and the perception of Nokia amongst consumers is rapidly deterioating.

The big question is what will happen to the Nokia brand end technology? Could Microsoft (NASDAQ:MSFT) be a buyer? I think it is very unlikely as the company has its smartphone operating system in place and is rumoured to be moving into hardware as well. This is not necessarily a prerequisite as Google (NASDAQ:GOOG) has shown how a smartphone business can be built without a hardware component. It is more likely that Nokia will end up in some kind of an intellectual property auction.

Nokia's death spiral highlights insight about reflexivity
What is going on in Nokia and Research in Motion (NASDAQ:RIMM) is fascinating as they are real-life examples of George Soros' General Theory of Reflexivity. The developments in both companies have punctured many value and turnaround hunters. Remember that just seven months ago many famous value investors were out saying that RIMM was the play of 2012 - well, RIMM is down 50 percent so far this year.

The key to understanding the downfall of Nokia and RIMM is that market participants' views of the world are always partial and distorted and this can influence the situation in which they relate to because false views lead to inappropriate actions.

The "attack" by Apple (NASDAQ:AAPL) was not mitigated by either Nokia nor RIMM. As a result perceptions changed a lot in Nokia and RIMM amongst employees/management (losing self-esteem), developers (who do not want to work on losing platforms), consumers, partners, distributors, the media and investors. The changed perceptions might have been wrong or otherwise, but the fact is that due to this many of the companies' best employees left, innovation dried up and without backing from developers their platforms became irrelevant compared to Android and iOS.


Another trend many investors ignored, and I do not understand why, was the fact that consumer and enterprise technology needs have converged, and thus RIMM did not have a niche segment from which to regain strength. Nokia spread itself thin over too many products and did not define itself clearly enough in the market as either clearly a low-cost or high-end manufacturer.

It is important to understand that the perceptions of RIMM and Nokia have not changed and as long as things persist the way they have been their downfall will continue. I remain extremely negative on both companies.