This Is Why Nokia Is So Relaxed
Rita is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The past few years have been horrific for the company as it lost the ace position in the market, lost market share as rapidly as a forest fire spreads and now is burning through whatever cash it still has. However, this holiday season is providing Nokia (NYSE: NOK) the last chance to save it from a possible bankruptcy and is providing Stephen Elop the last chance to save his job as the CEO of the Finnish phone maker.
Recently Nokia’s shares have seen some resurgence and have moved above their all-time low and even the company has started looking better as it announced phones good enough to battle with Apple’s (NASDAQ: AAPL) iPhone and Google’s Android powered smartphones from Samsung, Sony, HTC and many others. Still, all this is based on the assumption that the latest range of Lumia smartphones powered by Microsoft’s (NASDAQ: MSFT) WP8 platform will be a huge success and will bite into Apple’s, Google’s, and Samsung’s market shares. Though all this might sound very nice to Nokia fans, no one ever said this is going to be easy. The demand for the iPhone 5 has surpassed that for all the previous iPhone models and thus making it not only the most successful iPhone, but also the most successful smartphone. Apple managed to sell 5 million iPhone 5 devices within three days (September 21 to September 23) since its launch as against the 4 million devices sold for the iPhone 4S in 2011 and the 1.7 million devices sold for the iPhone 4 in 2010.
In case the situation turns out to be otherwise, Nokia will be in trouble. While industry experts and investors are worried about the future of Nokia, it is strange to see how calm and relaxed the company’s management is. As if it is known to them that whatever be the situation, Nokia will emerge problem-free. Let’s take a look at the possible reasons for such a relaxed attitude.
Nokia’s management can be relaxed mainly because of two reasons - either they are sure that Lumia-WP8 combination is going to be successful, or they have one or more back-up plans in case things go wrong. It’s obvious for management to relax if they know the latest Lumia range will achieve success. But, it is not possible for anyone to predict any such thing until the devices are available and customers decide its fate. So, what are the other points which are helping management relax? I feel, definitely the company has in mind some contingency plans for the worst case scenario. Let’s assume that WP8 platform will not be successful and since Nokia is devoted to this platform only, the phone maker will lose hope and have to file for bankruptcy. Next, let’s take two situations:
Scenario A: Microsoft comes to rescue
If WP8 turns out to be a failure, the situation will have serious consequences for the Windows maker. Microsoft has already invested too heavily in developing the Windows 8 and the Windows Phone 8 platforms for turning its dream of “converged devices” into reality. The Window’s maker’s dream of making it big in the mobile devices space depends entirely on the success of its new platforms and also the survival of Nokia. May be Microsoft also has arrangements with other phone makers such as Samsung and HTC, among many others, to bring to the market its offerings, Nokia is the only manufacturer devoted completely to the needs of Microsoft.
The other established phone makers are all planning to focus mainly on Android devices and treat WP8 as a side-business just to add a little variety to their offerings. In case WP8 fails, these phone makers will simply shift their focus to Android only and the future chances of these players working with Microsoft in some new venture will also be reduced substantially. In such a situation, Microsoft will have no hold on them and will be at the mercy of these mobile giants. However, if Microsoft bails out Nokia from the possible bankruptcy, it will have a great deal of authority on the Finnish phone maker. Microsoft can buy-out Nokia and then use the expertise of the company to make its own mobile phones and may be even tablets in the near future.
Microsoft has worked too hard and has invested too much in the new platform to allow it to be a failure that easily. Surely the tech giant will do everything in its means to save it investment and this automatically provides a sense of certainty to Nokia’s management.
Scenario B: Rescue by Microsoft not available/not wanted
Till now it has been very clear how Nokia can afford to stay so calm when the chances of success of the Nokia-Windows partnership cannot actually be calculated. They expect the big fish to come to the rescue. But, what if the big fish decides not to? There has never been any announcement from Microsoft assuring Nokia of any assistance if things go wrong. Shouldn’t Nokia be worried at least because of this possibility? Or, can this be the situation that Nokia doesn’t want Microsoft’s help actually?
Perhaps management at Nokia feels that they can resort to Android OS if nothing else works out. Nokia wanted to capture a large share of the smartphone space by offering a new OS-experience. But if that fails, there is no reason why Nokia should not approach Google and get a license to use Android in its latest handsets. At least, this move is a sure way to success and thus much better than betting on WP8’s chances of success. Nokia’s handsets have always been of superior quality with good battery back-up and strong features. It was the choice of the OS that messed up things for Nokia. So, finally making the right choice can put Nokia back in the race.
Thus, while the success of WP8 will be the desired path for Nokia and will be much more valuable to the phone maker, even the failure of the platform will not be the final blow for Nokia. The company will survive either on its own or get a life support from Microsoft. However, in the worst-case scenario, it will be better for Microsoft to acquire Nokia instead of letting the phone maker join hands with Google as that would mark the end of the Window’s maker dream to rule the smartphone OS space. Management is surely aware of these alternatives and these are possibilities that explain how they can be and act calm.
Of course, the final outcome even before the devices are launched cannot be predicted. I personally feel Nokia will not have to use any of the contingency plans discussed today. Though not as high as that for the iPhone 5, there is substantial excitement related to the launch of the Lumia 820 and Lumia 920 handsets and even the WP8 platform. So, let’s all wait for the “D-day” and then we will be in a better position to comment in why Nokia’s management could act calm.
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