This Hard-Hit Cellphone Pioneer May Be Turning Around
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the last few years, as the smartphone revolution has developed and matured, two companies have basically dominated market share to such a degree that one can speak of a duopoly. I am of course referring to Apple (NASDAQ: AAPL) and Samsung, who have together cornered the smartphone market. Poor old Nokia (NYSE: NOK), whose name was once synonymous with cellphones worldwide, has rather been left behind due to its sluggishness in adopting new technology and recognizing the changing industry in which it operated. However, some bright spots have recently been appearing for the cellphone manufacturer.
Of Nokia’s three operating segments, they are by far best known for their mobile devices, which is also the segment that has been causing them the most trouble. Based in Finland, Nokia employs over 100.000 people and has over one billion customers worldwide. Operating in over 160 countries, Nokia is one of the world’s best known brands. Yet, it is no secret that Nokia has fallen upon hard times, and even this may be an understatement. The company’s share price has been annihilated in the last few years. Since peaking at around $40 in late 2007, the price has been smashed down to $2.95. Indeed, the company has been losing money most of this year, but with the release of a new smartphone and the abandoning of their Symbian operating system, things seem to be turning around.
With the Nokia Lumia 920, the company finally appears to have released a product that can compete with Apple and Samsung’s flagship models. Running Windows Phone, initial interest for the device has been very strong. Preorders were apparently sold out in Italy, and also in France the phone was very well received. Some retailers in the US were also sold out. However, with no concrete figures released yet, one can only speculate on whether or not Nokia has been able to recapture any significant market share. At the moment, Nokia commands only 4.2% of the smartphone market, compared to Samsung’s massive 32.5% and Apple’s 14%. The Samsung Galaxy line of phones has seen immense popularity worldwide.
Nokia’s earnings aren’t too encouraging at the moment. In the most recent report, sales were down 19% YoY, and the company reported a $576 million loss for the quarter. The only division that performed at all well was the Nokia Siemens Network, with sales up 5% QoQ. However, the company as a whole finally clocked a tiny, but positive operating margin of 1.1% for the first time in several quarters. Compared to Apple, the numbers are pretty shocking. In Apple’s last report, the company saw a 27% YoY growth in revenue and a 24% rise in reported earnings. The difference in profit margin is also striking, with Apple currently clocking 26.67%. However, one could ask whether the company will be able to sustain this massive growth.
Nokia used to be, and in many places still is, a household name. We have learned, however, that this is no guarantee for success, as Nokia sales have plummeted along with their stock price in recent years. Having lost most of their market share to the new cellphone giants, Nokia’s future seemed to hang in the balance for a long time. However, with their release of the Lumia 920 and the switch to Windows Phone, things might be looking up for the Finnish company. Official sales figures for this new phone should provide more guidance on the company’s future prospects, and its ability to keep up with the competition.
DUJames has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. 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!