Nokia? No Thanks

Jayson 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) recently released quarterly results that appear to be positive, but in reality, aren't that great. I believe that Nokia’s management hasn’t been able to stabilize the company’s overall business and has only managed to cut costs. This is not enough to help the company in a highly competitive environment. While sales of its smartphones continue to lag, investors are continuing to lose confidence.

7.4 million Lumia devices shipped

The company announced that 7.4 million Lumia devices have been shipped in the second quarter, which appears to be positive. However, the company will be facing tougher competition in the second half of 2013, especially with new iPhone and Android devices set to be released. Overall, investors should see the 7.4 million devices as a small positive, but you should also brace for more poor performance.

Nokia’s ramp up of its latest products (Lumia and Asha) is coming during a tough time. The most anticipated Nokia phone will be equipped with a massive 41 megapixel camera set to go on sale on July 26, (for $300), with a two year contract. One has to wonder how it will fare against new the new iPhone and Galaxy devices, both of which are due out later this year.

Think cash on hand is a reason to buy?

Investors thinking Nokia’s hefty cash position justifies an investment are better off buying shares in BlackBerry (NASDAQ: BBRY). According to Yahoo!, it holds $2.8 billion in cash which equates to $5.48 per share. Blackberry currently has a market cap of around $4.6 billion, which implies, the market is pricing one of the largest private global physical networks, its infrastructure, and patents at a mere $1.8 billion, which seems to be undervalued.

Nokia also faces rising interest costs as rating agency Standard & Poor's downgraded the company’s senior unsecured debt to B+ from BB-. S&P cited a weakening balance sheet as the reason for a downgrade. The company will now be facing rising interest costs due to the recently lowered debt rating.

Is Nokia up for sale?

Perhaps the only way to save Nokia is to be bought out by Microsoft (NASDAQ: MSFT). Such an acquisition would make sense: Nokia has seen its past glory falter under increased competition and Microsoft has been ambitious in its plans to gain ground in the global smartphone market. According to an article in The Wall Street Journal, Microsoft already explored the possibility, but nothing came of it. In 2011 Nokia CEO (and former Microsoft executive) Stephen Elop made Windows the exclusive operating system for the Nokia cell phone line.

While recent reports have shown that Microsoft is not buying Nokia, Nokia’s Lumia accounts for 80% of Microsoft’s phone shipments. Yet even with that penetration, Microsoft only has a 3% share of the global market. Smartphones are important to Microsoft as PC sales continue to slump and it recently took a $900 million charge on tablets. Some feel Microsoft is partly to blame for poor Nokia sales.

Conclusion

Things are just not looking bright for Nokia and investors should steer clear. While some will take comfort in the cash on its balance sheet, there is one fact that clearly shows that Nokia is on the decline. In the first quarter, for the first time ever, Samsung outsold Nokia in its native Finland, which is the company’s last stronghold.

It's incredible to think just how much of our digital and technological lives are almost entirely shaped and molded by just a handful of companies. Find out "Who Will Win the War Between the 5 Biggest Tech Stocks?" in The Motley Fool's latest free report, which details the knock-down, drag-out battle being waged by the five kings of tech. Click here to keep reading.


Jayson Derrick has no position in any stocks mentioned. The Motley Fool owns shares of 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure