Nokia Will Prove To Be A Winner In 2013
Ishtiaq 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) is one of the most widely recognized brands in the world. The company was once the biggest name in the mobile phone market thanks to its strong product portfolio. Through innovation and a strong research and development team, the company became a trend setter in the market. However, after the launch of the iPhone by Apple (NASDAQ: AAPL) in 2007, the company started losing its market share. People started to move towards the new trendy smartphones, and the company lost the majority of its customers.
After the slump, the company had to take a hard look at its position and change its strategy to reach the top again. Changes in strategy have helped the company, and it has started to regain its market share. Fourth quarter smartphone sales have given the market a positive surprise, and the stock is up 19%.
Encouraging Lumia Sales and Future Outlook
The company will report fourth quarter earnings on Jan. 24. However, a sneak peak was given into the sales figures. Net sales for the fourth quarter in devices and services were about 3.9 billion Euros ($5.09 billion). Nokia sold a total of 86.3 million devices. Smartphones accounted for 6.6 million units, of which 4.4 million were the Windows-based Lumia handsets. This is hugely encouraging news for the company. New CEO Stephen Elop has been trying to increase the sales of Nokia smartphones with the Windows-based operating system, as his company is trying to get the best out of its partnership with Microsoft (NASDAQ: MSFT).
It has taken the company two years to show any signs of a turnaround. Sales for Nokia have been falling for the past five years. However, fourth quarter sales figures are encouraging for the company, and it would like this trend to continue. The turnaround has taken a little longer than expected, but it looks like the sleeping giant is finally waking up. Asia is one of the biggest markets for Nokia, and currently the Lumia line is giving some serious competition to HTC in China. Nokia has a massive and loyal customer base in Asia, and people love its hardware. Recently, the company has also launched its Lumia handsets in India, another major market for Nokia. I expect the company to get substantial market share in the Indian smartphone market as well. The handsets are priced attractively, and it should be affordable for major portions of the market.
Not Everything is Rosy
Although the company has given a positive surprise regarding its sales, not everything is rosy at Nokia. Most importantly, the financial position of the company has deteriorated substantially, and Nokia is following a costly strategy to turn the company around. As a result, the cash balances of the company are deteriorating. Nokia's cash balances were €3.6 billion ($4.77 billion) at the end of the third quarter, down from €7 billion ($9.28 billion) at the end of 2010. If the cash balances keep deteriorating at the current pace, the company can face considerable problems in the future.
Nokia will report cash balances on Jan. 24 in its earnings report, and then we will have a better understanding of the financial position of the company. However, I believe the positive news about the sales will have a strong impact on the stock, even if there is news of further decline in cash balances. Encouraging signs about the future prospects of the company will help soften the blow if there is a drop in the cash balances. However, the company will have to improve cash flows from operations soon, in order to deal with the cash issues. Furthermore, Nokia needs to improve its operations and supply chain. There is no use of having demand if you cannot provide the product on time. Fourth quarter sales could have been even better if the company did not face any trouble with its supply chain.
Nokia has undergone a substantial recovery, and sales figures for Lumia are encouraging. I believe Nokia will build on this strong quarter, and the company will carry on its rise. I expect next quarter sales to get a boost from the Indian market. We should remember that Nokia has a very strong customer base in India, and it is an extremely important market for the company. At the moment, Nokia is an attractive investment. I am not saying that 2013 will be an easy ride for the company. It will face intense competition from Apple and Samsung, but I believe Nokia will compete well with these giants.
IshtiaqAhmed has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple 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!