Memo to Nokia: "Konkurssiin" is Finnish for Bankrupt
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It pretty much appears as if all that is left is the formal filing of the bankruptcy petition for Nokia Corporation (NYSE: NOK), the Finnish maker of the Lumia series of smart phones, judging by the action, or inaction, of its partner, elected leaders, and company management. These all leave little hope for the recovery of the company. The market obviously agrees as the stock has fallen 23.40% for the last month of market action; and 2.17% for the last week.
The great strength of Nokia was supposed to be its emerging market presence. For 14 years, Nokia Corporation sold more mobile phones than any other company in the world. Earlier this year, it was supplanted by Samsung (SSNLF). On July 13, Nokia announced that it would close two of its four sales offices in China. In addition to shutting down the sales offices in Chengdu and Shanghai, Nokia is consolidating operations in Beijing and Guanzhou.
By contrast, Apple (NASDAQ: AAPL) is gearing up its operations in China for the introduction of the iPhone 5 this Fall. Some have contended that Nokia would recover as cost conscious Chinese buyers and others in emerging markets would be attracted by the lower-priced Window Phones, which Nokia has produced in a partnership with Microsoft Corporation (NASDAQ: MSFT). The huge reduction of the presence in China evinces that Nokia's management does not see that happening.
In addition to the reduction in its China operations, Nokia Corporation has slashed the price of the Lumia 900 by 50% in the United States. The Lumia 900 has not been what Nokia was hoping nor what it needed. Introduced only three months ago in a disastrous introduction, sales of the Lumia 900 have been disappointing, to put it mildly. It has hardly challenged the iPhone from Apple or Galaxy Nexus from Samsung, as touted.
The shareholders of Nokia have not received any support from Microsoft, the Government of Finland or the management of the company itself. Microsoft could have taken any number of positive steps to engender confidence in the markets for the future of Nokia. Instead, it introduced a version of Windows 8 that is not compatible with any of the older phones sold by Nokia. Needless to say, the stock price was punished.
For those shareholders hoping that Nokia is too big to fail, guess again. Almost 150 years old, Nokia Corporation at one time represented 4% of the gross domestic product of Finland. However, the Prime Minister, Jyrki Katainen, recently replied to a question about Helsinki buying shares of Nokia to prop it up, with, "This is not our business. We are developing Finland into a country where companies can do well, but this is not the way of support along which the government will go."
Like Microsoft and the Government of Finland, apparently Nokia management does not think its own stock is a good investment even though it is down almost 60% for 2012 with a price-to-book ratio of 0.51 and a price-to-sales ratio of 0.16. With plenty of cash and more possible from reducing or eliminating the dividend, Nokia has not instituted a share buyback program in an attempt to raise the stock price and instill confidence in the financial markets about its future.
These actions make it very difficult for Nokia to conduct any business operations. Borrowing will be difficult as Nokia was recently downgraded to "junk" status by Moody's. If Nokia decides to be a more agressive "patent troll" and sue to generate income, defendants will not be inclined to negotiate with the company tottering. Future partnerships, desperately needed, will be difficult to form.
Nokia Corporation is now trading around $1.80 a share. It is very difficult for a stock to recover from that price level. It makes it even more difficult when the actions of the Government, its partner and its own management paint a very bearish portrait for the future of Nokia.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple, 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.
