Nokia: A Speculative Play on the Safer Side

Joseph is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The holiday season is approaching, which could mean good things and higher sales for Nokia (NYSE: NOK) and their new Lumia 920 smartphone.

The Lumia 920 was released in late October alongside Microsoft's (NASDAQ: MSFT) new Windows 8 operating system, and after Apple's (NASDAQ: AAPL) iPhone 5. The Lumia 920 is currently exclusive to AT&T (NYSE: T), who recently reported that they have sold out of the phone in all of its available colors. The phone has apparently also sold out at Wal-mart and Amazon.com as well, beating out the popular Samsung Galaxy S3. If Nokia continues to successfully sell smartphones and Windows 8 starts picking up steam, the company may experience a perfect storm type situation which, as the official Windows Phone maker, has the potential to slingshot them back into the spotlight as the world's largest handset maker. This is a big if, so let's take a closer look at some of the other positives of the company.

Balance Sheet:

One thing that Nokia has going for it is a very strong balance sheet. The company has a nearly $11 billion cash horde, compared with only $4.8 billion in long-term debt, according to ycharts. Concerns about the company burning through its cash have been raised, but may seem to be a bit over-exaggerated if the Lumia continues to sell and generate revenues that add back to the cash pile, especially since the company receives a $1 billion annuity from Microsoft in exchange for running its Windows 8 OS. Nokia's Lumia is selling, and selling well is good news for the company and its balance sheet, as well as soothing news for shareholders. Microsoft is also betting big with Windows 8, while resting a lot of the Windows 8 smartphone burden on the shoulders of Nokia.

Nokia is not just a handset maker:

Nokia has arguably the best mapping and location services platform when compared to Google (NASDAQ: GOOG) and Apple. After the recent mapping blunder with the new iPhone 5, Nokia is capitalizing on their location services even further. Nokia recently released their mapping HTML5-based iOS application, which will be released on the App Store, as well as other platforms, because according to CEO Steven Elop:

“People want great maps, and with HERE we can bring together Nokia’s location offering to deliver people a better way to explore, discover and share their world... Additionally, with HERE we can extend our 20 years of location expertise to new devices and operating systems that reach beyond Nokia. As a result, we believe that more people benefit from and contribute to our leading mapping and location service.”

Nokia also has location and mapping service partnerships with OracleFord, Amazon, Hyundai, Microsoft Bing, Yahoo!, Garmin, Mercedes, and other customers. The new augmented reality app, "City Lens," is another selling point for the company's new smartphone, and Nokia's superior mapping technology is an aspect of the the company that is heavily relied upon to make sure the app works correctly. 

Conclusion:

Nokia is more of a speculative play than an investment at this point, but now that smartphone sales seem to be picking up, the company may become more attractive as a long term investment too. There has been debate as to whether or not the phones have been selling out because of demand, or because of short supply, however. If it is the former and not the latter, Nokia may be sitting pretty, especially since they are already loaded with cash. If the official smartphone sales turn out to be less than appealing, the company still recieves an annual $1 billion from Mr. Softee.

Nokia is also a leader in mapping and location services. According to Nokia spokesman Reija Sihlman:

“We are basically the world’s largest maps company... We have built our reputation during the last years also by acquiring companies like NAVTEQ and others. Since last Tuesday we have a name to celebrate our position in the industry…HERE relies on more than 80,000 data sources.” 

Nokia's lead in mapping powers many different major companies, as well as many location based apps on both iOS and Android. If the company gives up or fails as a handset maker, they can always shift to their dominant mapping technology and market position, and maybe even transition into more of a software business. 

When it comes down to it, many aspects of Nokia's future are extremely speculative. As far as the company sinking into the financial abyss never to return, however, this seems highly unlikely. They have a rock-solid balance sheet and successful mapping and location services business that they can turn to if times get even tougher then they already are for the struggling company. The company also receives a significant annual cash injection from Microsoft to help it through tough times. The company also has a successful partnership with Siemens, which posted a record non-IFRS profit of around $410.5 million in the third quarter, helping to grow the company's cash reserves. 

Buying shares of Nokia would be a speculative play that could potentially pay off big time. The company has many positives going for it and its negatives seem to be evaporating- especially if the smartphones really are selling well. In a worst case scenario, I see the company revolving more around its mapping business, as well as its profitable joint venture with Siemens. 


Jharry1 owns shares of Microsoft and Nokia. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Amazon.com, Google, Microsoft, and AT&T.; 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!

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