Should You Still Bank on Nokia?
Keki is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It is indeed sad to see the once all powerful Nokia (NYSE: NOK), reduced to just a shell of its former self. I remember how the company once used to be hailed as the number one mobile phone manufacturer.
Ever since Apple (NASDAQ: AAPL) introduced the first ever iPhone, dozens of players jumped on to the smartphone bandwagon and have released their own versions of a touch screen mobile device. And like in all forms of competition, the smartphone space has seen both its share of winners and losers - one of them being Nokia.
Investors who banked on Nokia since 2008 must have certainly burned their hands terribly by now. As of 14th August 2012, Nokia’s stock has plummeted more than 90% since the beginning of 2008.
Source: BigCharts
To revive itself, Nokia has been doing the equivalent of a garage sale of late. Just recently the company offloaded some 500 of its patents to a company called Vringo for about $22 million. The patents are relatively useless because they come under the FRAND framework, which means that they should be licensed on fair and reasonable grounds.
Besides this, Nokia is in the process of laying off about 10,000 employees and has sold off its redundant Qt platform to a Finland based software company Digia. All of these tweaks and changes many not seem very significant alone, but it will help Nokia remove redundancies that are weighing it down.
So what does the future hold for Nokia?
According to Gartner, Nokia’s Symbian OS market share declined to just 8.6% in the first quarter of 2012, down from a loftier 27% it enjoyed in the comparable quarter last year. Symbian’s market share looks quite large compared to Microsoft’s (NASDAQ: MSFT) Windows based operating system which captured just 1.9% for the same period.
But given that Nokia has dumped its “burning platform” (Symbian) altogether, it would have to work much harder to regain smartphone market share through its partnership with Microsoft. And, with Apple and Google’s (NASDAQ: GOOG) Android based devices already commanding almost 80% of the global smartphone market, gaining any significant traction would certainly be a tall order for the company.
But should we be looking at the smartphone market alone? Maybe not...
Emerging markets still hot for Nokia
High-end smartphones aren’t everything to Nokia as of now. Many consumers in emerging markets, such as South Africa, India and China, still buy the company’s low-end mobile devices.
According to Gartner, Nokia stood second in terms of worldwide mobile shipments in the second quarter this year, with a global share of 19.9% - just a little shy of Samsung’s 21.6% share. This only goes to show that Nokia might be down but it’s still not entirely out.
Having said that, in the long run there will be an increasing number of people who would adopt low priced smartphones. But as long as Nokia is able to keep a large footprint in the low-end space, it should be able to buy more time to ramp up its smartphone ambitions. Besides, research firm IDC believes that Windows based phones would capture a 19% market share by 2016. But how much of this would belong to Nokia, remains unanswered.
So far, it seems that Nokia’s relationship with Microsoft isn't as airtight as we had once thought it to be.
Going through a rough patch
Microsoft recently released the “Surface” all by itself without Nokia’s help, knowing full well that the Finnish mobile maker would be releasing its own version of the Windows 8 tablet. Secondly, we have Microsoft planning to release Windows 8 for mobile devices, and guess what. Nokia’s current range of Lumia phones aren’t going to support Windows 8. They would only get a small update which would probably not have all the features of the new operating system. From what I gather, I think Nokia is being taken for a ride just when it needs Microsoft the most.
Though the good news is that Nokia will be introducing new Windows Phone 8 based Lumia handsets as soon as next month. But with the launch of Apple's all new iPhone 5 scheduled for next month too, I doubt if Nokia would be able to atttract much attention to itself.
The Foolish bottom-line
Nokia may have lost out in the smartphone space so far, but we cannot really judge what the future holds by looking through the rear view mirror. Samsung did not gain dominance through its own Bada platform. Instead it took on the smartphone space by storm through its Android based devices.
Similarly, with Symbian out of the way, Nokia doesn't need to worry too much about developing and updating an operating system or even remaining loyal to one for that matter. If Microsoft turns rogue, Nokia does have the option to jump ship and adopt a rival OS such as Google’s Android, if compelled to do so.
Nokia’s condition isn’t as bad as that of Research in Motion (NASDAQ: BBRY). According to Gartner, the BlackBerry maker's global share of mobile device sales dropped to just 1.9%. On the other hand, Nokia is still the second largest mobile device maker in the world and still has a window of opportunity to effect a turnaround.
Should you bank on the Finnish mobile maker? Maybe. But I'd suggest waiting for Nokia's WP8 Lumia sales to do the talking.
So what do you think about Nokia’s future? Feel free to leave your comments in the space below.
kekidf has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, 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.
