2013 Is the Year of Nokia's Resurrection

Nauman is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Nokia (NYSE: NOK) recently announced its fourth-quarter earnings -- the company disappointed investors after revealing that it will axe its annual dividend for the first time in over 20 years -- Nokia paid a billion dollar dividend in May 2012. I can completely understand where Nokia is coming from -- the company faces so many challenges on so many fronts.

After a series of credit downgrades from the three major credit rating firms, all of whom cut Nokia's debt rating to junk, the firm has since been under significant scrutiny over its cash position. It can now accumulate the cash saved by the dividend cut to remove the cloud of liquidity-concerns surrounding the company.

The embattled Finnish phone maker posted a $270 million net profit in the quarter, a considerable improvement from the $1.4 billion loss in the year-ago quarter. But for the full year, Nokia recorded a loss of $4 billion compared to a $1.5 billion loss in 2011. The real question now is if Nokia's contingency plan will continue working in the future or not?

Nokia's fourth-quarter profit follows five successive quarterly losses. That debacle forced Nokia to make a risky strategy shift early in 2011 to start using Microsoft’s (NASDAQ: MSFT) untested Windows smartphone software. Microsoft itself needed a partner -- with its recent collaboration with Nokia, Microsoft's Windows will be able to get an improved hardware support. Moreover, Microsoft Windows 8 has recently entered the smartphone software market, where Apple (NASDAQ: AAPL) iOS and Google Android are the current market leaders.

Nokia itself is under immense pressure as the Finnish firm's near term goal is to at least survive in the smartphone territory, which at the moment is dominated by Apple and Samsung handsets.

With Nokia shares trading around $3.75, I've several reasons to expect that Nokia will regain its footing again.

  • First, the shipments' trend for Asha and Lumia devices was very strong in the fourth-quarter.
  • Second, financial improvements at Nokia Siemens Network have stabilized Nokia's fundamentals -- with Nokia's 50% ownership, any potential future sale of Nokia Siemens will generate a huge windfall for the company.
  • But most notably, the rumored release of Lumia device with a superior image sensors that will ensure that Nokia's future phones be on par with the likes of Google Nexus 5 and Samsung Galaxy S IV.

It's my view that profit margins could be maintained and even increased as Nokia introduces more new products that have flagship capabilities. Lumia and Asha phones have already boosted Nokia's smartphone shipments for the first time in over a year. Nokia shipped 4.4 million Lumia-based devices (510, 710, 800 and 900) in the fourth-quarter, up from 2.9 million devices in the previous quarter.

Moreover, Nokia launched more than a dozen Asha devices and shipped 9.3 million units in the fourth-quarter. Nevertheless, that was still eclipsed by Apple's 48 million iPhones, sold over the same three months. With Apple leaving no stone unturned to find solutions in order to reduce its dependence on Samsung as a component supplier, I think there's a high possibility in the future that Nokia could also join Apple in dumping Samsung as a supplier.

Foolish bottom-line

I believe, 2013 is going to be a critical year for Nokia. Dividend suspension might be a temporary setback for investors but on the long run the move will bolster Nokia's net cash position, which had shrunk alarmingly over the past two years. Lumia sales were held back by shortages of components that delayed supplies to stores; but with the company raising its production capacity and as the Lumia becomes more widely available, quarterly earnings will certainly improve further in 2013.

MaaniValueGuru has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus