Cheaper Chips Mean Smarter Cheap Phones (The Motley Fool)

Qualcomm (Nasdaq: QCOM - News) has been the only provider of chipsets for Microsoft's (Nasdaq: MSFT - News) Windows Phone mobile operating system. As of last month, when Nokia (NYSE: NOK - News) unveiled its two latest smartphones, the Lumia 800 and Lumia 710, that was still true. But take nothing for granted, because Nokia has decided to change its chipset provider for its future Windows Phone handsets.

Earlier this month, Nokia announced that it would start using chipsets from ST-Ericsson, a joint venture between STMicroelectronics (NYSE: STM - News) and Ericsson (Nasdaq: ERIC - News). Nokia described its agreement with ST-Ericsson as one that will help Windows Phone-powered smartphones reach "new price points and geographies." That phrase is the key to the switch in suppliers.

Geographies
When Nokia originally showed off its new smartphones, CEO Stephen Elop dwelled on Nokia's global reach. He was likely referring to emerging markets, places where potential future growth for smartphone sales is high -- if the costs for such handsets can be contained.

Price points
As Nokia has found out, cost can make all the difference. Even though it has been steadily losing ground with its phones in established areas, in impoverished regions like Africa, Nokia has made itself into a brand as recognizable as Coca-Cola, according to The Economist. It has done so with such devices as the $30 Nokia 1100 cellphone, which that publication has called the "Kalashnikov of communication for the poor."

So for Nokia's 60% share of the African cellphone market, and for its 50% share of the Chinese and Indian markets -- where most consumers can only afford the cheapest entry-level phones -- the company must be able to bring the cost of its Windows Phones so low they can become those markets' first affordable smartphones.

And it better do it before Samsung, Huawei, or ZTE do it with a phone powered by Google's (Nasdaq: GOOG - News) Android OS, or well before Apple (Nasdaq: AAPL - News) could ever bring out an entry-level iPhone.

A chipset price war?
Qualcomm, meanwhile, is not giving up the fight to keep Nokia's business. A top executive for the company, Enrico Salvatori, told TechRadar that the company is working on a long-term relationship with Nokia. But if that relationship is going to go back to more than a friends-with- benefits arrangement, then the chipset maker will have to keep chipping away at cost. If it doesn't, as demonstrated by ST-Ericsson, there are others that will.

Nokia's earnings for last quarter showed a company that was down but not out. It is still the world's largest maker of mobile devices; it still creates positive cash flow, and has more cash on hand than money it owes. It builds good, well-designed equipment, but has fallen down hard with its own smartphone software. Abandoning its unpopular homegrown Symbian OS for its new smartphones is a good decision. Whether or not going with Microsoft's Windows Phone OS turns out better won't be determined for at least several months.

A lot depends on how those Windows Phones do. I am going to give Nokia a thumbs-up on CAPS. I don't intend to put my hard-earned cash in it yet, as I still have trepidations, but I feel (with fingers crossed) the company can pull out of its tailspin.

Fool contributor Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Google, creating a bull call spread position in Apple, and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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A Smarter Approach to the 4 Percent Rule (U.S. News & World Report)

Few financial principles are as universally accepted as the 4 percent rule. Financial planner William Bengen first published research in a 1994 Journal of Financial Planning article that showed that a retiree can safely withdraw 4 percent of his portfolio, adjusted for inflation each year, and still have enough money to last for at least 30 years. This 4 percent rule has proved to be true for every 30-year slice of history since the 1920's, including the Great Depression. Whether you think the 4 percent rule is helpful or flawed, there's a smarter way to make sure it works for you.

[See 10 Essential Sources of Retirement Income.]

Why the rule is helpful. Recent surveys have shown that 55 percent of Americans do not know how much money they need to save for retirement and 45 percent haven't even tried to figure it out. Many people who think they know how much to save are guessing too low. Clearly we need some guidance, and the 4 percent rule is a great place to start. Social Security, pensions, and annuities will get you part of the way there. But you'll likely need to tap into other retirement assets to make up the rest. To achieve a 4 percent withdrawal rate, you'll need a portfolio equal to 25 times your annual expenses that aren't absorbed by other income sources.

[See How To Set A Retirement Savings Goal.]

Why the rule is flawed. The 4 percent withdrawal rate would have carried a retiree through most historical periods longer than 30 years. But during the worst stretches, it would have lasted no longer than that. So, if you live longer than expected, you risk outliving your money. Conversely, if your portfolio performs better than expected, you risk having money left over when you die. While not a catastrophe, that could lead to unnecessary stinginess during your golden years. Further, this method requires a portfolio invested in at least 50 percent equities, an allocation that some retirees may not be comfortable with. And, of course, there's always the risk that your individual 30-year slice of history will turn out to be worse than any other previous 30-year periods.

Use it as an adjustable starting point. According to the Employee Benefit Research Institute's 2011 Retirement Confidence Survey, workers who have tried to compute how much they need for retirement are twice as likely to be confident of achieving their retirement goals as those who have not attempted the exercise. Start with the 4 percent rule and you're on the right path.

If you are retiring at a younger age, you'll need a lower initial withdrawal rate. A 3 percent rate (or a nest egg of 33 times your annual expense needs) would have carried you through any historical 50-year period. And if your individual risk tolerance prohibits you from stashing at least 50 percent of your portfolio in equities, you'll need an even bigger nest egg.

[See Why Retirees Shouldn't Shun the Stock Market.]

Be flexible about withdrawals. Part of your retirement budget will include essential items like housing, food, utilities, and medical care. But the rest of it will be for discretionary items like travel, entertainment, and gifts. Depending on how much of your basic expenses are covered by steady income streams like Social Security, you may have a little wiggle room in your withdrawal rate. Instead of planning rigid withdrawals, take a flexible approach by cutting back on discretionary purchases in lean years and ramping back up as your portfolio recovers.

There are other factors that may give you flexibility as well. According to the U.S. Bureau of Labor Statistics, consumers over 74 years old spend 26 percent less than the 65 to 74-year-old set. And a recent MetLife study predicts that boomers will inherit about $8.4 trillion over the coming years, a median of $64,000 per person. Additionally, the majority of boomers are expecting to work at least a little in retirement. By taking your individual circumstances into account each year, you can create a more flexible approach to retirement withdrawals, improving upon the standard 4 percent guidance.

Sydney Lagier is a former certified public accountant. Since retiring in 2008 at the age of 44, she has been writing about the transition from productive member of society to gal of leisure at her blog, Retirement: A Full-Time Job.

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