Where Does Nokia Stand?

Yasir 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), once a leading manufacturer of mobile phones, is currently struggling to get back on its feet after losing much of its market share to the iOS and Android platforms over the last couple of years. Once a dominant force in the mobile phone industry, Nokia is currently not even in the top 5 smartphone manufacturers in terms of Q1 2013 shipments. Apple's (NASDAQ: AAPL) iPhone, Google's Android-based smartphones and Research In Motion's (NASDAQ: BBRY) BlackBerry smartphones have done the most damage to Nokia in the last few years. 

While Apple and BlackBerry used their own software along with their hardware, other companies, including Samsung and Sony, shook hands with Google for its Android OS. Nokia, on the other hand, partnered with Microsoft for the use of the Windows Mobile OS. Using Google's Android OS is finally paying off for most manufacturers as the Android platform has most of the market, while Nokia hasn't done that well, especially with its first generation of Lumia smartphones.

Valuation

With a market cap of over $14 billion, the Finnish company is currently trading between $3.50-$4.00. The company's stock has been relatively stable in 2013, avoiding any major ups and downs, staying in the range of around $3 to $4.50. Aside from the fact that Nokia is still playing catch up in the smartphones market, the company's last earnings report also didn't result in any investor confidence, as the company reported losses of $196 million for the quarter. After briefly enjoying profits in Q4 2012, Nokia's last-quarter loss means that the company has had losses in 7 quarters over the last 2 years. Despite the Lumia smartphones picking up the pace and reaching 5.6 million shipments, Nokia's total sales fell, overshadowed by its declining mobile phones division.

While Nokia has been struggling since smartphones came into town, BlackBerry did quite well in the smartphones market for a couple of years, but now finds itself in a similar position as Nokia. BlackBerry, with a market cap of over $7 billion, has been trading between $13.50 and $14.50. 

Apple, after starting a revolution in mobile phones, has also been struggling after its global market share fell below 20%. The company, with a market cap of over $388 billion, is trading around $413. Earlier this year, Apple hit below the $400 mark as investors started losing their patience; however, the company went up to $450 after its last earnings report promised investors a better return by adapting a new repurchase scheme and increasing per share dividends.

What Went Wrong With Nokia?

The transition from mobile phones to smartphones was probably one of the biggest factors that affected Nokia. After the death of Nokia's Symbian platform, the company has been struggling, not just with the Windows OS but also with platforms like Meego and Maemo, which Nokia briefly used before partnering with Microsoft.

Apple's iPhone did most of the damage to Nokia and other manufacturers in the industry. While Apple proved to be the best in making touchscreen smartphones after the launch of its iPhone, BlackBerry focused on the corporate world with its own features including its BBM and Email service.

The lack of innovation is another crucial factor that severely affected the company. Even after announcing its partnership with Microsoft, Nokia was behind in the smartphones market, which is why the first generation of Lumia phones were released soon after the partnership, without major research and developments. Nokia's slow reaction to newer technology was also a major factor, especially in regards to touch screen or the multiple SIM technology.

Current Strengths

One of Nokia's current strength lies with Microsoft's Windows Phone 8 OS, which has been doing relatively well. Nokia's 2nd generation of Lumia smartphones have definitely done quite well, especially if compared to the previous Lumia phones. However, Nokia Lumia sales are still quite weak compared to Apple's over 47 million iPhone shipments or BlackBerry's 6.3 million shipments for the quarter. This might not happen anytime soon, but after Apple loses some of its market share, there might be a time when Google's Android OS struggles in the smartphone market--and that's a place where the WP8 OS can capitalize. 

Apple's iOS platform is still pretty much what it used to be in 2007. BlackBerry's CEO also believes that Apple has been using the similar OS for quite some time now, without any major improvements. Even though the iOS 7 has a lot of potential, the Windows Phone fever might finally pick a pace, which Nokia could capitalize on as it dominates the market for Windows OS phones.

What's Not So Great

A lot of analysts in favor of Nokia believed that the company would be able to get back on the right track  and that Nokia's smartphones needed a little more time. However, it has been a long time since Nokia joined hands with Microsoft, and since then the business hasn't picked up well. Nokia currently faces threats from all the major smartphone manufacturers, especially Apple and Samsung. Apple, along with Samsung, has done quite well in recent years in making a brand image and in creating customer loyalty. Therefore, it will be anything but easy to break Apple's current market or to capture some of its market share, even though Apple has lost much of its market share to Android. On top of that, Nokia now faces competition from the new and improved BlackBerry, which is using its own new BB 10 operating system. 

Nokia's core strength lied on its differentiated products for different types of audiences, including high-end smartphones and budget smartphones. Apple, on the other hand, focuses on a particular type of audience with its iPhone--the people who can afford it. Similarly, BlackBerry also caters to the needs of mostly corporate individuals. However, BlackBerry did unveil some low-priced smartphones recently, based in its BB10 platform. While Nokia's Lumia business has been picking up, its mobile phone division, which is still a big part of the company, is headed towards a decline. 

Will a Microsoft Deal Help Nokia?

Recently, there have been a lot of reports that Microsoft has been considering buying out Nokia's phone unit division. Even though the deal is still unlikely, this would help Microsoft in entering into the smartphones business, as it would control both the software and the hardware. Microsoft has always been a software company, teaming up with partners who are involved in making the hardware. Recently, however, Microsoft did step up its game in hardware with its Surface tablet and might well be on its way to entering into hardware for smartphones. If a deal could be reached, then this would finally give investors something to smile about.

Apple and BlackBerry make their own hardware and software, which might be the reason why the companies have been quite successful in the past. If a deal between Microsoft and Nokia can be reached, then maybe the Windows 8 smartphones will finally pick up pace.

Conclusion 

Even though Nokia's Lumia sales have been growing, its overall business is declining and the company's future still looks uncertain. Nokia has never been able to get back on its feet after losing much of its market in the past couple of years, mainly because of the success of Apple's iPhone and Google's Android-based smartphones. Even though Apple has been losing its market, it doesn't look like Nokia will get back on top any time soon. In the long run, however, if Microsoft can continue to improve its Windows Phone OS and gain a decent market share, then I don't see why Nokia won't be able to capitalize on the opportunity. Nokia finds itself in a very similar position as BlackBerry, as both companies are struggling to get back on top in the industry once again. BlackBerry has gambled its future on the BB10 platform, while Nokia hopes that the Windows Phone might finally be the factor which could help the company get back on track.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.


Yasir Idrees has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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!

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