Nokia's Future Is on the Table

Brendan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

“…How did we get to this point? Why did we fall behind when the world around us evolved? ...Nokia, our platform is burning.”

Shortly after joining Nokia (NYSE: NOK) in 2011, CEO Stephen Elop eloquently captured the attention of employees (and the world) by describing the company’s plight.

Elop recognized the daunting task ahead of him—transforming a dying company. Over the past 2 years, he has tried to revive the former mobile market leader. Unfortunately for Elop, though, it looks as though Nokia is nearing life support.

The former king of mobile was dethroned

How? Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) introduced revolutionary operating systems. As Elop went on to say:

Apple demonstrated that if designed well, consumers would buy a high-priced phone with a great experience and developers would build applications. They changed the game, and today, Apple owns the high-end range.

And then, there is Android (purchased by Google in 2005). In about two years, Android created a platform that attracts application developers, service providers and hardware manufacturers. Android came in at the high-end, they are now winning the mid-range, and quickly they are going downstream….. Google has become a gravitational force, drawing much of the industry's innovation to its core
.

Apple’s iOS and Google’s Android mobile operating systems continue to dominate the market. According to International Data Corporation (IDC), a leading market intelligence firm for the technology industry, Android and iOS own over 92% of the smartphone operating system market.

<img alt="" src="http://g.fool.com/editorial/images/52256/idc_large.PNG" />

Source: IDC.

They are here to stay.

Nokia’s ally is likely out of the equation

To stay afloat, Nokia needs a savior, or a miracle. Unfortunately, it does not seem like its partner Microsoft (NASDAQ: MSFT) will ride in on a white horse. Under the firms’ existing agreement, Nokia uses the Windows operating system to power its smartphones. In return, Microsoft invests billions of dollars for marketing and engineering purposes.

Microsoft recently discussed acquisition options with Nokia, but the firms did not reach an agreement. If Nokia does not rebound, Microsoft’s mobile division could also be in danger. IDC estimated that Nokia’s Lumia smartphone represented around 79% of all Windows Phone shipments in the first quarter. Unless Microsoft develops its own smartphone or partners with another firm, it needs Nokia to hold BlackBerry NASDAQ: BBRY) at bay.

With the fourth-largest market share in smartphone operating systems, BlackBerry is a David fighting technology Goliaths. BlackBerry, which historically boasted strong North American sales, is now focusing on emerging markets, notably China and India. By offering lower-cost smartphones, it hopes to attract a large customer base in regions where Nokia invested over 20 years building its brand.

As of the first quarter, Nokia claimed nearly 15% of the market share in the Asia Pacific region, down 24% since the same time last year. Now, in part due to its partnership with Microsoft, Nokia has slowly wedged its way into the North American market.

But if Nokia’s future turns sour quickly, BlackBerry has an even better chance of grabbing additional market share, especially in Asia.

Nokia’s next steps

At this point in time, Nokia has three primary options:

First, it can stay its course and trust in a last-ditch effort to remain afloat. For this to occur, it must see a dramatic sales increase in its Asian sector and through its partnership with Microsoft.

Second, it could be acquired by a private equity firm. With roughly $6.3 billion in cash, Nokia could be a nice acquisition target. However, as seen by the recent Dell escapade, taking a public company private may arouse too much public attention. If this route was to occur, though, its assets would likely be spun off into various businesses or sold.

Last, it could be acquired by Huawei, a global Chinese telecommunications company. However, this scenario is unlikely because of the large amount of cash Huawei would need to secure to purchase Nokia. Additionally, Huawei may experience regulatory anti-trust pressure due to its already vast network and operations.

Conclusion

Even with rising competition, Nokia’s best option as of now is to forge into the future. Investors should watch for unanticipated growth through its partnership with Microsoft, a potential rebound in its Asian market, or news of an acquisition—which would drive up the share price. However, given its recent performance and rising competition, such scenarios seem unlikely.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.


Brendan Marasco has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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