I See a Silver Lining on the Horizon!
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nokia (NYSE: NOK) has lost its competitive edge in the market place. So also has Research in Motion (NASDAQ: BBRY). NOK and RIMM shares are now in continual decline and that is what they most recently have in common though, at some point, they have both been giant producers and marketers of high-end mobile communication solutions worldwide. Nokia was a behemoth manufacturer of cell phones and it was a stock many loved to own – and that was just a few years ago. All that is fast becoming history as its sales and financials took a plunge a few years back, and the value of Nokia shares plummeted from over $40 in 2008 to a paltry sum less than $2 in 2012.
Whatever it was that Nokia missed, one thing is certain and that was its inability to successfully shift over to the production and marketing of smartphones when it mattered most. Nokia lost its large pool of teeming customers to its keen competitors like Apple (NASDAQ: AAPL) simply because its product linees failed to attract and keep its customers. Compared to Nokia, Apple built its product lines with the tendency of creating spill-over effects besides offering attractive and appealing models that raised customers’ expectations. Apple has found success in its range of products: iPod, iPhone and iPad are products with spill-over effects, such that a customer who owned an iPod would certainly want to own an iPhone and subsequently own an iPad as well.
Notwithstanding this basis of comparison, Nokia has been a unique company in its own class, but it is unfortunate that not many hitherto customers of Nokia knew this fact, and unhealthy comparison with Apple became Nokia’s greatest undoing. Or how do you mean? That a company that had spent over EUR 45 billion in the last two decades on research and development won’t have outstanding products to roll out to the delight of its teeming customers? And Nokia now owns over ten thousand patent families. In comparison to Apple: a recent report states that Apple spent less than 3% of its huge revenue on research and development in the last five years. Nokia’s troubles, in my opinion, were market induced, driven by overreactions and sentiments but ultimately, the customer is always right.
In spite of all the troubles Nokia has found itself in, I hold a bullish view on NOK formed with the conviction that Nokia can start to record decent improvements with its latest recovery strategy. Last month, Citigroup changed its rating on Nokia from Sell to Neutral following the announcement of Nokia’s turnaround strategies.
The biggest of any turnaround plan Nokia can hope for depends on the willingness of Microsoft (NASDAQ: MSFT) to help Nokia survive. Microsoft would need to offer considerations to Nokia’s all-current Lumia phones which offer viable alternatives to consumers in the ever growing smartphone global market. Nokia’s Lumia smartphones needs Microsoft’s consent to upgrade from its present Windows 7 platform to Windows 8 for a longer lifespan, but Microsoft doesn’t seem disposed to that as it is planning to launch its mobile oriented Windows 8 by October. Will Microsoft dump Nokia, its old ally, when it matters most? I’m certain that is unlikely because Nokia is crucial to the success of Microsoft’s Windows 8, but it is not indispensable since HTC and Samsung are readily available to offer support to Microsoft. However, Nokia remains Microsoft’s partner-in-contract in Microsoft’s mobile phone strategy, based on Windows exclusive phone system and for which Nokia has been earning $1 billion annually from Microsoft since 2010. Should Microsoft offer a lifeline to Nokia, investment prospects in Nokia will suddenly become much brighter.
Presently, there is little or nothing wrong that investors can do with the shares of Nokia. If I decide to buy NOK stock now at less than $2, I stand to lose all my investment if Nokia goes bankrupt. However, if it gets better for Nokia with the support of Microsoft, then Nokia could be worth much more than it is trading now and I would be bound to make appreciable profits on my investment.
muhammadbazil 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.