Nokia: Betting On The Windows 8 OS
Maxwell 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 substantial headwinds facing it during this long and arduous transition phase it is enduring. Nokia's current sustainability is depending greatly on its strong liquidity and the efficacy of its Lumina series launch. However, these phones are quickly becoming obsolete as they will not be used for the new Windows OS. In this article, I will explain why conservative shareholders may want to hedge their interests and limit their exposure in this stock soon as possible before the next earnings report. Interested investors should look for advantageous points of entry into this investment with the release of the next earnings report. More aggressive shareholders should hold throughout the potential dips in the remainder of 2012. Nokia expects an uptick with the advent of Windows 8 OS and hopes producing a Windows phone will bring resurgence and differentiate its products in 2013.
Nokia has hitched its wagon to Microsoft (NASDAQ: MSFT) and is seemingly depending entirely on the success of the new Windows OS in order to create a new ecosystem with the Windows Phone. This is a unilateral ordeal for Nokia. It will depend solely on Microsoft to help it differentiate its product from Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL), while Microsoft may ultimately choose another manufacturer to support its software down the line. This is unlikely considering the investments Microsoft has made in Nokia. However, expect Microsoft to eventually take its business elsewhere if Nokia is not able to deliver devices that captivate market share from Apple and Google.
Right now, Nokia is the preferred manufacturer for Microsoft. This will last until Microsoft loses faith in Nokia's ability to compete in the industry with the likes of Samsung (SSNLF.PK) and other international OEMs. Nokia is not in a great position right now but it's not going bankrupt as soon as many pundits would suggest. It has solid liquidity and still has a renowned brand in conjunction with significant market share in the industry. Its price in the market will dip in the summer though the fall until Windows OS creates a significant uptick.
Thanks to Microsoft, Nokia will have enough cash to make it through this lull in productivity until the Windows Phone production begins. Nokia is at a disadvantage because it entered the smartphone market late and midstream opposed to the cyclical pattern in conjunction with the holiday seasons. Its Lumina series was viable for about a quarter of the year opposed to the full year that is typical in most smartphone releases. Aside from the Windows Phone, Nokia's plan consists of cutting costs as much as possible and capitalizing on the low-cost smartphone and feature phone markets in the U.S and abroad in emerging markets like China and India. However, Nokia is facing headwinds from increasing competition from Chinese manufacturers that are driving the market and moving abroad to countries like Africa and India as well. Weakening demand in China and Europe is also contributing to Nokia's current struggles.
Nokia is attempting to cut costs, hold on to capital and expand on a limited portfolio as it waits for the culmination of the new Windows phone and ecosystem. Nokia will struggle into 2013 most likely until Windows OS and then Windows Phone begins to gain momentum in the international smartphone market. Nokia can sustain until the Windows Phone launch by trying to become leaner and more focused on producing innovative phones that appeal to the consumer. Even then, Nokia will depend on the Microsoft partnership that could be dissolved or marginalized by other OEM at any time in the future. Nokia will need to find a way to embrace the Android OS as well so it does not find itself at the mercy of Microsoft for the sake of differentiation.
Beyond Windows, Nokia lacks a long-term plan for sustainability besides becoming smaller, more cost efficient and capitalizing on low-end phones. This may create enough time to innovate and create a more mature business model through 2014. Nokia is available at such a significant discount that the potential for substantial capital appreciation is reasonable, anticipating a prolonged uptick from the advent of Windows OS and Windows Phones from Q4 2012 through 2014. This will certainly create a large enough window for aggressive investors and shareholders to benefit from significant capital appreciation and an adequate dividend as Nokia's perception improves in the market. Investors and shareholders that have confidence in Microsoft's OS and its potential in the mobile market will want to add Nokia to their portfolio.
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