If You believe in Nokia When Should You Invest in Them?
John 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) has been like a nightmare to investors over the last year as its market share of cell phones has dried up like a puddle on a hot asphalt road. This has contributed to an 80%+ drop in its stock value as well as a couple down grades in credit ratings. Still, there are some that romantically believe the company can turn itself around. If this is true, when is a good time to invest in the company to take advantage of a long climb back up to value?
First the Bad News
It is old news that latest blow came Tuesday, with Fitch Ratings cutting Nokia’s long-term credit rating to junk status at BB-plus with a negative outlook, down from a previous rating of BBB-minus. This was coming because of the poor financial state of the company. Leading up to this was the long term market disintegration.
In India, network operators work on a really thin margin and are not in the habit of subsidizing phones. Having not kept up with the needs and interests of the middle class, the company's finances have dried up to support smaller stores. The basic marketing support like sample phones are hard to come by while the competition like Samsung sends representatives to visit the shops.
In China, domestic vendors are being favored by the operators who are heading up phone sales. International companies are getting pushed to the back seat as Nokia has watched its sales drop 62% alone n the last year.
In general, by not keeping up with consumer interests, the company has watched its market share drop in half by 2011. One simple example of this disconnect is with touch-screen phones. The company was slow moving into this market and Samsung took a huge chnuk of the market share away.
The Change Hurts
As they embrace a new alliance with Microsoft (we will get into that soon) they also have abandoned the Symbian smartphone platform it was using. For whatever reasons—maybe the abandonment happened too soon—but this must have contributed to the struggle the company is facing. Turning to the new Microsoft platform one would think “conversion.” The company has all these clients and now they will convert them all over to Microsoft. Well, the conversion thinking may have been a bit premature and since dealers are selling these phones, support from Nokia was minimal at best. The whole transition may have been a large part of this struggle. Who is going to buy your phones when they are being told the Symbian platform is being abandoned!
Hope for the Future?
The alliance with Microsoft (NASDAQ: MSFT) and the development of its windows 8 phone OS is where Nokia’s future sits. After Stephen Elop joined as chief executive from Windows maker Microsoft he started the complete strategy overhaul. It is always hard to transition from one OS to another. There is a great opportunity here with the whole Microsoft culture that offers a natural integration between computers, and phone information sharing.
But the transition still has a long way to climb. Since the gloomy first-quarter results, Elop has emphasized that the company remains in a transition period. Nokia has taken a clear sense of urgency” in responding to the challenges it faces. Without reiterating-- during its first-quarter earnings announcement, not only did Nokia report less-than-stellar results, but its vision for what lies ahead suggests that things might only get worse.
Do not expect to see a real turn around for the next 6 months. It will be toward the end of the year and into 2013 before we can really get a sense as to Nokia’s future. So my advice would be to wait before investing in Nokia. 2013 will give us a better feel for the future success of the company and whether one should pour money into it for the long term.
The Motley Fool has no positions in the stocks mentioned above. johnmylant has no positions in the stocks mentioned above. 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.