Make Way For the Heroic Comeback!

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

In the past, "Nokia(NYSE: NOK) was a direct synonym for the word "mobile phone" just like "Xerox" for photocopies. But in the first decade of the 21st century, the marriage of the mobile phone handset and the Net marked the beginning of a new era. Nokia got eclipsed by the likes of Samsung, Apple and Google as they came out with better products while Nokia missed sight of key innovations.  So is it time to write this company off or will it make a heroic comeback?

Nokia marks its comeback story with an intelligent new line of handsets

Nokia, a hardware hero, and Microsoft (NASDAQ: MSFT), a software princess. Together they are the Brangelina of the tech world. Nokia’s partnership with Microsoft is the best step the company has taken towards getting on its feet again. The Lumia 620 handset is sold out in the UK and is one of the top selling phones at Singtel, Singapore. Nokia unveiled two new Lumia models, the 720 and 520, earlier this year, expanding the reach of the latest Windows 8 Phones to new price points. While the Lumia 720 is a mid-range smartphone and fills the gap between the existing Lumia 820 and 620 models, the Lumia 520 is priced at less than $200 and positions Nokia well against the onslaught of cheap, low-end Android smartphones in the emerging markets.

Nokia also has a strong advantage over competitors in China after signing a lucrative deal with the world's largest carrier by subscribers, China Mobile (NYSE: CHL). China Mobile is a $220 billion giant based in Hong Kong. The company is accelerating its deployment of 4G TD-LTE in China. By working with Alcatel-Lucent (ALU), lightRadio  Metro Radio will bring high-performance 4G services to Shanghai, Nanjing and Qingdao, three of the fastest growing cities in China. According to IHS, By 2015 China Mobile will have a near insurmountable lead with 55.1 million 4G subscribers. With the 4G network coming into place, China Mobile is negotiating a deal to sell Apple's iPhone. Roughly 15 million iPhone users are already on the China Mobile network using unlocked phones and are unable to access the carrier's 3G network. This shows how much demand there is for a China Mobile iPhone.

We also can't forget Nokia’s secret weapon - its footing in the low-end smartphone market. Nokia has strong brand recognition in emerging countries such as China and India, and sells its Asha feature phones in these countries successfully. According to sources, the company sold 9.3 million Asha units in India alone. This intelligent line of products may augment Nokia’s comeback story.

Nokia Siemens Networks

We all keep talking about Nokia’s fall in the handsets segment, but we forget about the rise of Nokia Siemens Networks. About a quarter of the world's population is connected every day using NSN infrastructure. The company's service offerings include everything from GSM to LTE networks covering extensive geography. Some of this network's clients include the largest providers in the world like Verizon, Vodafone and China Mobile. Last year, Nokia Siemens Networks generated revenue of $17.5 billion. As a result, NSN has quickly emerged as a leader in the ongoing 4G LTE transition around the world, and is taking market share away from competitors. As of Q3 2012, NSN had succeeded in increasing its market share to about 20% of the wireless infrastructure industry, only 2% behind the second largest player, Huawei. It now expects to claim the number two spot behind Ericsson by the end of 2013. Recently, Videocon confirmed plans to launch 4G services in India, as it announced a partnership with Nokia Siemens Networks to facilitate the roll-out.

Incredible mapping device and the new license business

Nokia easily beats Apple with respect to location services, and has some advantages when compared to Google's well-known maps. The recent Toyota deal shows how good Nokia's mapping business is. Last year, Nokia beat Google for Ford's mapping contract, and this is becoming more of a trend now. Four out of five cars with pre-mounted navigation systems are driving with HERE-technologies.

Thus, the HERE technology must be excellent since the auto industry needs reliable partners in its competitive business. Nokia's successful maps will help Microsoft push its Windows Phone platform. Since the HERE platform will be available on all WP8 devices, and considering Windows Phone 8’s popularity among programmers, this will further push not only the WP8 platform but also Nokia's HERE business.

The management recently stated that, "the company will push to license its map data out to other developers and partner companies to raise money," and that "revenue can be generated in variety of areas: licensing content, licensing platform, revenue per apps or through advertising." The advantage of licensing fees is that, while the costs stay constant, Nokia earns money with every WP8 device sold.

Final takeaway

Fundamentally, Nokia has several positives. Nokia is trading for 1.25 times book value, 35% of sales and has $3.56 in cash per share. EPS next year is expected to rise by 114%. The company scrapped its dividend this year, thus it can now accumulate the cash saved to alleviate liquidity-concerns. With newly revamped products, the success of the Nokia Siemens Network, partnership with Microsoft and the new license business, the 143 year old Finnish company is staging a full-steam-ahead plan to get back in the game. Give our beloved Nokia another chance and your portfolio will surely soar with the hero!

 

 


rakesh786 has no position in any stocks mentioned. The Motley Fool recommends Apple, Ford, Google, and Vodafone. The Motley Fool owns shares of Apple, China Mobile, Ford, 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure