Is Nokia Able To Turn It Around?
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I don't want to be too nostalgic however there were situations in corporate America in which a company made a comeback after many had already buried the company. Most notably, Apple (NASDAQ: AAPL) was a company on the brink of bankruptcy in the early nineties when Steve Jobs had returned to save it. This kind of turnaround isn't common and Apple is the exception to the rule. Shares of Nokia Corporation (NYSE: NOK) continue to contract and the company's losses keep accumulating. The company obviously doesn't have a Steve Jobs like figure to come to its rescue. Further, I don't wish to draw a comparison between the two companies because that's not my point. I only wish to raise the question: is Nokia on the right path to turnaround from its current dire situation? Let's examine the company's game plan, and see whether Nokia is heading down a path to turn its dire situation around.
Nokia continues to stick with Microsoft (NASDAQ: MSFT); it didn't go along with Google's Android as other Smart-phone producers did. I think this was a good move by Nokia because to enter this late into the game just to be another Android operated Smart-phone would lower the chances of success for this company. There are already some positive reports about Microsoft's interface: the system is supposed to be more business oriented and easier to interact with Office and Windows for PCs, something that isn't so with Android or the iPhone operating system.
Nokia is also expanding its low cost mobile phones as the company has recently unveiled a couple of new touch-screen cell phones. These products are probably keeping the company afloat as these phones suppose to produce a 20% profit margin. But is the company heading at the right path? Well, in my humble opinion yes and no.
Nokia still dominates the basic mobile phone industry with nearly 1 million basic phones sold daily. Nokia is trying along with Microsoft and its recent Windows 8 operating system to make a dent in the Smart-phone industry. But trying to expand in a market that is dominated by Apple seems impossible – there are reports that Apple sold nearly 5 million iPhone 5 in the past three days and continues to break its iPhone 4s sales records. Up to now Nokia's market share in the Smart-phone industry has shrunk from around 40% at the last quarter of 2009 to less than 5% in the second quarter of 2012. This means the company has a long way to go.
The only way, in my opinion, for Nokia to turn the situation around is to develop a new product with new branding. Obviously easier said than done, but if Nokia wishes to stop the avalanche of its stock and sales, this could be the best chance the company will have.
When it comes to market trends it's nearly impossible to know what will be the next big thing. But if Nokia should learn something from Apple's success is that trying to keep ahead of curve especially in the technology industry is the only way to turn things around. Therefore the company could have benefited by taking a risk and exploring a new branch of products and not just issuing a new product in an already highly competitive market. Alas, I think the company has already made its Hail Mary with its new Smart-phone and Windows 8 interface. If the company's new product will be one that will make or break Nokia, then I'm highly skeptic it could pull the company around. After all, despite the positive reviews on Windows 8, I doubt Nokia's Smart-phone will be such an innovative and different product from the iPhone or Samsung's Galaxy so that it could gain a significant market share. In the mean time the company continues to show very little improvement.
Nokia's financial reports in the second quarter were slightly better than the first quarter but much worse than the parallel quarter of 2011: the company's revenues rose by 2.5% in the second quarter of 2012 compared to the previous quarter but declined by nearly 18.7% compared to Q2 2011. The company's operating loss was still high but was lower than the last couple of quarters. These very modest improvements may have contributed to the recent rally of the company's stock.
The chart below shows the changes in Nokia's stock and S&P500 index in which they are normalized prices to 100 as of January 3rd, 2012.
As seen, Nokia's stock tumbled down by 62% during the year while the rest of the market, in this case the S&P500 slightly rose by 5%.
Nokia is still struggling and is trying to pull out of its mess by collaborating with Microsoft. It's hard to predict market trends especially in the high tech industry. But the odds are against Nokia and Microsoft with Apple and Samsung dominating the Smart-phone market. I think Nokia might benefit by reaching out to a new industry and introducing a completely product instead of just trying to grow in the Smart-phone market.
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Disclaimer: The author holds no positions in stocks mentioned and does not plan to initiate positions within 120 hours of the posting of this article. This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact.