Is Nokia a Value Trap or a Value Buy?
Naomi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A lot has been said recently about Nokia (NYSE: NOK); some are saying that the company is dying a slow and steady death while others are of the opinion that issues concerning Nokia are being blown out of proportion. These negative thoughts are mostly as a result of Nokia’s recent low price. Personally, I believe the company still has a lot of good things going for it, especially with its production of new phones and technology. Nokia’s price is also known to be competitive.
As at Q2 of 2012, Nokia was maintaining the No. 3 position as far as sales of smartphones are concerned, but due to the failure of Lumia 900 and Lumia 800 to effectively run Windows Phone 8, it suffered a decline in sales in Q3 which saw the company fall to the No. 7 position. Meanwhile Research In Motion Ltd (NASDAQ: BBRY), crept into the No. 3 position formerly occupied by Nokia. RIM, which currently has a free cash flow yield of close to 53%, plans to buy back up to 5% of the company’s outstanding shares.
One advantage for Nokia is its competitve pricing with the Lumia 920 being sold for $200 less than Apple's (NASDAQ: AAPL) iPhone 5. The Cupertino giant that has suffered a 23% decline in its share price over the last 2 months. The same thing can also be said about the Lumia 820, which along with Lumia 920, is being sold by AT&T, the second largest telecom in the United States with a market capitalization of around $190.5 billion. With the sales, Nokia is gradually but surely making steady progress on turning the company around.
This said, I find it necessary to point out that with the look of things, Nokia is presently aiming towards finding its feet in the tech industry more than achieving profitability. This explains why its smartphones are being sold at low prices. Nokia, a well known worldwide brand, has a history of turning its business around. Its history started in 1865 as a ground wood pulp mill, but today it is not just a Finnish company but a global multinational company. Risk taking has always been in its system. There is every possibility that the company could even join the corporate tablet business and when this happens, with the wide coverage it has already established through the sale of its cheap smartphones, it could be a big boost for shareholder value with even moderate success.
Presently, the Lumia 820, which comes with the new Windows 8 operating system from the stable of Microsoft (NASDAQ: MSFT), is rated as the cheapest smartphone in the United States. I would also mention Nokia’s introduction of HERE, which happened to be the first location cloud that is designed to give users the best of the world’s maps and locations, searched from multiple screens and operating systems. In fact, HERE is a complete redefinition of what digital map landscaping is all about. Nokia, with this new brand, is working towards presenting unique mobile location devices and services to people from all walks of life. In terms of the effect of this new innovation on shareholder returns, from the statement issued by Stephen Elop, Nokia CEO, the mapping technology will strengthen the platform which will in turn generate new revenue for the company. When this happens, there is invariably, a positive impact on shareholder returns.
In order to ensure the best digital map experience for its users, the company has announced its planned acquisition of Earthmine, a Berkeley, California based and privately-owned company which is synonymous with the development of a powerful end-to-end 3D street level imaging solution which cuts across hardware collection, workflows processing, cloud hosting and management. With the high quality reality capture and processing technologies from Earthmine being incorporated in HERE, its 3D map making capabilities will be among the best being enjoyed presently by mobile users. This acquisition is expected to close by the end of this year, 2012.
Nokia as a Patent Treasure Trove
When it comes to ownership of patents, I strongly give it up for Nokia. This Finnish phone manufacturing company presently has around 16,000 patents in telecommunications within the United States alone. Outside the United States, it has not less than 20,000 patents. Add this to the 15-year agreement the company has with Qualcomm based on the use of Qualcomm’s patents in Nokia phones and in my opinion, you have a company that is really a patent treasure trove.
Although Nokia has seen turbulent times, the company remains a value buy. With ownership of patents that are worth more than the company itself, it is an acquisition target for cash-rich tech company like Google (NASDAQ: GOOG), which bought Motorola for $12.5 billion with its 14,600 patents, fewer than what Nokia currently owns. Another tech giant that will be interested in Nokia is Microsoft. Reason number one is that Nokia phones already make use of Windows 8 which means technological compatibility for the two companies. Reason number two is that Microsoft has the cash to buy these patents. In all, Nokia can only make a value buy for Microsoft or Google, based on its patent but not for the average investor.
Chizy has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. 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.If you have questions about this post or the Fool’s blog network, click here for information.