News of Nokia’s Demise Greatly Exaggerated
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The precipitous drop in Nokia’s (NYSE: NOK) share price in the past month – to the tune of 30% - in and of itself is enough to make shareholders cringe. That the drop came on the heels of a series of bad news, poor press and downgrades didn't help matters.
There have even been rumblings by some that the future of Nokia as a viable entity is in question – one headline questioned whether Nokia would go the way of Eastman Kodak - now a penny stock trading over the counter. As mentioned in previous write-ups believing in Nokia’s turnaround does require an understanding and trust in CEO Stephen Elop’s new direction – primarily the shift to the Lumia 900 powered by Microsoft’s (NASDAQ: MSFT) Mango OS. And let’s not forget the EURO 10 billion in cash the company is sitting on - it's pretty clear Nokia’s going to be around a while.
Contrary to what some may think simply scanning the headlines, not all the news is bad. Here are a few of the less-than-ideal realities Nokia management and shareholders are dealing with right now – and a couple of the not-so-bad.
The 14-year hold Nokia had as the #1 seller of mobile phones in the world is gone – Samsung’s 92 million units sold this past quarter outpaced Nokia’s 83 million. But how surprising is that really? With the shift in direction toward Lumia everyone knew it would take time to ramp up. The new smartphone isn’t the only mobile phone product the company offers of course, but much of the marketing efforts and certainly the focus of management is squarely in the Lumia corner. That was going to have an impact in the short-term, no way around that.
S&P’s recent downgrade of Nokia's debt to “below investment grade” status – alright, “junk” – was certainly a blow and definitely impacted the drop in stock price. A debt downgrade is always a double whammy too – any and all investors view it negatively, as they should. And there are several – famed investor Peter Lynch for example – that place extra emphasis on a company’s debt rating, even more so than equity. The line of reasoning is bond investors do more homework than pure equity researchers. True? Doesn’t really matter – the double whammy impact is the same.
Stephen Elop took a leap – a giant leap - shifting from the Symbian platform to Microsoft’s OS. If you’ve heard the rants coming from former Nokia executive Lee Williams, you’ll know he’s of the mind the shift was a big mistake and came too soon. But his lamenting of the change sounds more like a whiny former exec than anything else. Frankly – based on his little diatribe - the company is better off without people like that. He even suggested that if the phones didn’t work, who cares? At least they’d be able to “…crank out 1.5 to 2 million units whenever we wanted…” What? That kind of thinking is absolutely idiotic and flies right in the face of Nokia management’s new vision.
Was the shift to the Mango OS a risk? Darn right it was - and is - and kudos to them for having the gumption to do it. Upon reflection it will still turn out to be a positive, defining moment in the company’s history.
Finally, Nokia just recently won a patent lawsuit that allows them – and co-defender HTC – to continue selling phones in Europe. And there’s a new infringement lawsuit Nokia has brought against the likes of HTC (so much for that friendship), ViewSonic and embattled competitor Research in Motion. With the difficulties RIMM is having, the last thing they need is to lose a lawsuit. When Nokia won last year’s suit against Apple the behemoth just wrote a check – that’s not going to be so easy for RIM should they come out on the wrong side of this one. What's at stake? With expected annual revenues for Nokia of about $650 million, protecting those patents is crucial.
It’s been said before and is worth stating again – in spite of all you’ve heard and read, news of Nokia’s demise is exaggerated. Give this company – and this management team – some time to implement their vision. For mid to long-term investors the pay-off is going to be huge.
timbrugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services recommend 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.