Would Diogenes Buy Nokia for $5 Since Microsoft Hasn't?
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Props to "Global Value Investor."
That is the byline for an investor who recently wrote the article, "Can Nokia Hit $5 A Share Once Restructing is Completed?" Even more a big-up to "Global Value Investor" for going cowboy and being long on Nokia Corporation (NYSE: NOK). Diogenes of Sinope, the Greek philosopher who believed that virtue was better revealed in action than in theory, would have approved. For the haters and cynics out there who would accuse "Global Value Investor" of talking his book, Nokia Corporation is off by more than 4% for the last week and over 34% for the past month of market action, so it has not worked.
"Global Value Investor's" basic thesis is that, "A presumed cooperation between Microsoft (NASDAQ: MSFT) and Nokia in the smart phone market, which, I believe, could be the fundamental catalyst in the awakening of Nokia." In addition, Global Value Investor states that, "However, analysts and investors are too focused on current sales and not fully appreciating the measures Nokia takes in gaining track."
At present, all recent actions by Microsoft indicate it will not be coming to the rescue of Nokia Corporation. The new Windows 8 does not work on older phones, most notably the Lumia series from Nokia. Microsoft just instituted a round of layoffs and spending reductions. In addition, it recently wrote off the $6.2 billion acquisition of aQuantitative. For any purchases anytime soon, $1.2 billion was just spent by Microsoft to buy Yammer.
So, it appears as if it is Microsoft who is the one "not fully appreciating the measures Nokia takes in gaining track."
Microsoft, its partner in the Windows smart phone, does not appear to be bullish about the future of Nokia Corporation, so what is it missing? The hope from "Global Value Investor" and others is that the Nokia Corporation will rally due to it is offerings at the lower end of the market. As succinctly stated by one supportive commentator, "China's cost-conscious billions will be W8/Lumia-nation."
There is already intense competition at every level of the smart phone market. In addition, there is not that wide of a range in pricing. Apple (NASDAQ: AAPL) is centered on China for growth, so it will not allow for its products to be priced out of such a critical market. If Apple is going to be too expensive for the masses in China, even with iPhones being subsidized, than that would seem to be the logical entry price point for Amazon (NASDAQ: AMZN) with its Kindle smart phone. Samsung (SSNLF) and Google (NASDAQ: GOOG) are already represented at the low end of the market with the Samsung Galaxy Y S5360 .
If going cheap works that well, than the Nano economy car from Tata Motors would have been a huge success. Instead it was such a disaster that Time magazine wrote about it in, "The Little Car that Couldn't." A huge part of the failure of the Nano, in the words of a rival car executive in India was that, “Nobody wants to buy the world’s cheapest car.”
That would seem to apply for smart phones, too. There is not that much of a difference in the cost of a smart phone from the low end to the high end: certainly nothing like the automobile market. And if going cheap was that much of an imperative, no smart phone would ever sell as a simple cell phone provides the basic communication functions needed such as talking, texting, video messaging, pictures and e-mailing.
As the legendary investor Peter Lynch once noted about buying stocks that have plummetted, "It is always darkest right before...its pitch black!" If there was upside to Nokia Corporation, than it seems that Microsoft would have stepped in long ago with much needed assistance. Instead, it did further damage with the Windows 8 not being compatible with older Nokia phones. As its partner, it would seem that no one knows the potential of Nokia Corporation better than Microsoft. Yet, there has been no action to maximize it. That tells investors all there is to know about the future of Nokia Corporation and that Microsoft does not think it is worth anywhere near $5 a share.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, Google, Microsoft, and Nokia. 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.If you have questions about this post or the Fool’s blog network, click here for information.