What’s Important Today (10/26/2011) Nokia’s New Phone, Berlusconi’s Trouble, Luxury Cars

Nokia’s new Microsoft smartphone: Today will be remembered as the day that Nokia (NYSE: NOK) began an historic turnaround, or when it lost its bet on new smartphones that run the Microsoft (NASDAQ: MSFT) Windows mobile OS. The world’s largest cellphone manufacturer released its Lumia model. The smartphone is expensive, with a retail price of $584. Some carriers may subsidize this to get long-term subscribers. But, there will not be many when firms like Verizon Wireless can sell out the Apple (NASDAQ: AAPL) iPhone 4S and Samsung and HTC phones that run on 4G networks. Nokia’s single leverage point is its joint venture with Microsoft. CEO Steve Ballmer has been willing to spend billions of dollars to move into the video game and search markets. So he may be willing to pay for market share in the Windows-based smartphone sector too. Ballmer knows he is nearly out of time as smartphone companies adopt the Android OS in rapidly growing numbers.

Italy’s deficit cuts risk PM’s job: The EU sovereign debt problem has deteriorated again. Pressure from Germany and France may have prompted Italy to begin deficit cuts. These unpopular government expense reductions may cost the nation’s randy billionaire prime minister Silvio Berlusconi his job. That would leave the country leaderless in a period when politicians must decide how much austerity the voters will accept as the nation’s ability to raise money in the capital markets falters. At the same time, EU-based banks have been asked to take write-downs on their Greek debt holdings. These write-downs could be as high as 60%. Most of these financial firms have said their balance sheets will not tolerate such actions. Their intransigence may be strong enough to derail the planned bailout of Greece.

Amazon spends money to make money: Amazon.com (NASDAQ: AMZN) disappointed investors. Its revenue rose 43% in the past quarter, but high fulfillment expenses, and probably the cost of Kindle Fire inventory, took net income margins to multiyear lows. CEO Jeff Bezos has made another of his decisions that assumes his company can spend a great deal of money over a short period to gain tablet PC market share from the Apple iPad and e-commerce market share from Walmart (NYSE: WMT), Target (NYSE: TGT) and Best Buy (NYSE: BBY). His gambles have worked in the past. It would be unwise to believe that he cannot make a shrewd decision, even if it offends shareholders, to position Amazon for another several years of success.

Luxury Cars: Consumer Reports released its annual auto reliability survey. The data showed just how badly the report fares as any indication of car buyer attitudes. Toyota (NYSE: TM) and Honda (NYSE: HMC) did well. But, each has had trouble with sales in the U.S. Some of this should be blamed on production constraints in Japan due to the March earthquake. Another reason is the massive recalls of Toyota cars a year and a half ago. Most Germany luxury cars did poorly in the survey. This will not bother Mercedes, BMW and Audi. They can barely keep their showrooms stocked due to unprecedented demand.

Douglas A. McIntyre