Are Analysts Being Too Harsh on Nokia?
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There have recently been many negative reports speculating that Nokia (NYSE: NOK) is on the brink of bankruptcy and that it is burning through its money more quickly than it can earn it. With this in mind, some may wonder why anyone should still invest in the company. Major players in the market are saying that would-be investors should wait a little longer before they start buying the stock, due to the risk involved. In fact, Nokia's reputation has been tarnished, and its credit rating has been downgraded to "junk." With all that is happening these days, it could easily be said that this company is not a good place to put one's money.
Its shares are declining, and its credit rating stands at just one level above speculative grade. In addition, the first quarter of 2012 led to disappointing financial reports for Nokia, the result of its products declining in popularity.
Nokia's poor financial situation also stems from competition with bigger companies like Apple. Obviously, one can say that Apple has beaten Nokia down, especially when comparing the two stocks, and it looks like Apple will continue to lead the industry. While the Nokia Lumia 900 sold relatively well, it couldn't overtake Apple's iPhone sales for the first month. Furthermore, it was unable to make Microsoft's (NASDAQ: MSFT) Windows Phone a major player in the field, as Google's (GOOG) Android and Apple's iOS continue to be the dominant smartphone leaders.
With all the rumors that Nokia is about to go down, however, the company remains positive about its future. The company recently announced a lot of good news for its customers and its investors.
One of these announcements is that it will release new low-end phones. Since touch-phones are the craze these days, Nokia is tapping into the market of customers who want these phones, but lack the budget. The Asha 305 supports dual SIM and works on 2G networks, the Asha 306 has Wi-Fi capabilities, and the Asha 311 is a 3G phone with Wi-Fi capabilities. The phones are Nokia's way of redeeming the company and driving more sales. They come at budget-friendly prices, as one can buy a unit between the prices of $79 and $110, depending on the model.
I would say that this is a great move for Nokia. While these phones are not like iPhones, they have wonderful features and are very cheap. Furthermore, since these phones are distributed in many countries, I think it is quite probable that they will help Nokia get back on its feet. It is likely to receive more sales from third-world countries where texting is prevalent.
Nokia is collaborating with Microsoft, which is another solution to Nokia's declining product demand. In this partnership, Nokia will basically create the physical components of the phone, while Microsoft will provide the OS. Microsoft's Windows Phone OS currently enjoys 5.2% of the market share while Android is at 61.0%. The collaboration between Nokia and Microsoft is likely to increase the market share for both companies in the coming years. It has actually been predicted that Microsoft's OS could claim a 19.2% share by 2016. In contrast, some have predicted that Research In Motion's (RIMM) BlackBerry OS will change little from its current 6.0% market share. Microsoft stock and Nokia stock, therefore, may both benefit moving forward.
Another piece of good news goes back to the Lumia 900. Seton Hall is planning to give Lumia 900 phones to all of its incoming freshman. This gives Nokia added publicity and helps establish its strength in the smartphone market. While it may not be as strong as some competitors, it is certainly making a name for itself. This also shows an additional benefit of its comptability with Microsoft, as Seton Hall uses this technology. Microsoft's dominant place in the tech industry should continue to yield rewards for Nokia.
In addition to these positives, the company recently signed a 4G deal with Zain KSA. This is great news for Nokia: As long as the deal is kept, it is another way for Nokia to have a steady cash flow other than from selling their phones. This will help it bounce back from any previous financial struggles.
Despite its difficulties, it seems that everything is starting to turn around for Nokia. It is not at the top of the industry right now, but it is finding ways to survive and get back in the game again. I would advise people to wait to learn more about the company's performance in this quarter, but there do appear to be much better things in store for Nokia.
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