Buying Nokia? Now Looks Like a Good Time
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The current quarter looks like Nokia's (NYSE: NOK) best opportunity to retake significant market share. The combination of a new flagship smartphone, the holiday quarter, and improvements in the company's other business segments provide Nokia with a great chance to execute, or at least make big progress, on its turnaround. It is now or never.
Currently, Nokia is a high risk, high reward stock. The company is suffering under immense competition from Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG), and has been bleeding money for the past few quarters. However, Nokia has the potential to net a big return if the company is able to regain part of its previous dominance. For investors who are bullish on Nokia and are looking for an opportunity to jump in, now looks like a good time.
In addition, last week (after the presidential election), the stock market declined, and Nokia’s stock was no exception. Nokia opened and closed the week at a price of $2.77 and $2.65, respectively, a decline of about 4% for the week. This drop happened despite the launch of Nokia’s new flagship smartphone, the Lumia 920, which runs Microsoft’s (NASDAQ: MSFT) new Windows Phone 8 OS. The phone launched on Nov. 2 in the UK and on Nov. 9 in the US. Taking into account the potential for a breakout quarter, the decline in stock price presents a good opportunity for investors who are bullish on Nokia to buy shares.
While the financial impact of the Lumia 920 and 820 is hard to gauge at this point, the Lumia 920 is packed with strong hardware. The smartphone has a 332 pixels per inch (greater than the iPhone 5 and Galaxy SIII) 4.5 inch display with “super sensitive touch,” which means it can be used while wearing gloves. The Lumia 920 has a dual core Snapdragon S4 processor, NFC, wireless charging, LTE, and a 8.7 megapixel camera with floating lens technology and a focal ratio of 2.0. One criticism of the phone is that it weighs more than the competition.
Regardless, the phone has received good reviews. CNET and The Verge gave the Lumia 920 scores of 8.5/10 and 7.9/10, respectively. In addition, AT&T is selling the phone along with a Nokia Wireless Charging Plate at a low price point of $99.99 with a two year contract. The phone could sell very well this holiday season. The company has a new good flagship smartphone and it launched the phone in the holiday quarter; basically, if Nokia is going to recover this quarter looks like its best opportunity.
Nokia recently raised its cash position by selling $980 million in bonds. The bonds are due in 2017 and are convertible into ordinary shares. The number of shares that could be issued is around 7.7% of outstanding shares, excluding shares owned by Nokia (WSJ). While Nokia sacrificed part of the value of the company, it solidified its balance sheet by raising a large amount of needed money.
In Q3 2012, Nokia posted an operating loss of 576 million Euros. In addition, the company only shipped 2.9 million Lumia phones. The quarter was ugly for Nokia. The company burned through cash, decreasing its net cash from 4.197 billion Euros in the previous quarter to 3.564 billion Euros. However, the Nokia Siemens Networks showed improvement and generated 182 million Euros in operating profit, and Nokia had improved margins in its Location & Commerce division.
Looking at market share, Nokia has been crushed by its competition. In Q3 2012, Nokia was pushed out of the top five largest smartphone vendors in the world (IDC). In addition, Microsoft Windows accounted for only 2% of the market. While this number is up 140% year over year, it is tiny. In the quarter, Android controlled 75% of the market. It was followed by iOS at 14.9%. Symbian, Windows, and Research In Motion’s (NASDAQ: BBRY) Blackberry OS accounted for 2.3%, 2%, and 4.3% of the market, respectively.
However, there is hope for Nokia. Smartphone shipments are still growing at a high rate. In Q3 2012, smartphone shipments increased by 46.4% year over year (IDC). In addition, smartphones only accounted for about 41% of total mobile phone shipments. Nokia and Microsoft can gain market share by winning new smartphone buyers. These customers should be easier to convince because they are not yet invested into either Android or iOS. Nokia and Microsoft are competing against RIMM for this third spot. Currently, Blackberry is ahead, but RIM’s new smartphones running BB10 will not launch until 2013. In addition, BB10 has been delayed multiple times in the past. Overall, Nokia and Microsoft have the initiative.
In summary, Nokia’s new Lumia smartphones, which run the new Windows Phone 8 OS, has recently launched with solid reviews. Nokia’s stagnant stock price, in response to the launch, looks like a buying opportunity for bullish investors. Furthermore, the company has a price per sales ratio of only 0.2. The combination of the holiday quarter, the Lumia 920, the device's low price point, and the company's improvements in its other business segments could result in a recovery quarter for the company.
If Nokia is going to recovery, this quarter looks likes its best bet. If the company does not show large improvements for the quarter, investors should probably stick a fork in Nokia and sell their shares. Again, Nokia is a high risk high reward stock and only investors who are bullish on Nokia and like these kinds of investments should consider buying.
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