Tick Tock, Nokia: Time May Be Running Out for Phone Maker

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NokiaShares of Nokia (NOK) hit an all-time low of $3.90 earlier this week. The same company that was the pride of Finland a decade ago -- leading the world in mobile handset sales -- appears to be as finished as it is Finnish.

As consumers move from yesterday's feature phones to the smartphones of tomorrow, Nokia is championing platforms that wireless customers seem to have little interest in embracing.

Last week's release of Lumia 900 through AT&T (T) should've been something special. As the flagship smartphone for Microsoft's (MSFT) Windows Phone mobile operating system, it was supposed to be the device that put both Microsoft and Nokia on the map.

The phone still has a chance to be a hit, despite a software glitch in some of its early production units that led to the company offering a $100 credit on their AT&T wireless bills to all buyers of the Lumia 900 through April 21 -- long after the glitch was fixed.

Knocking Nokia

Two mobile operating systems now hold the lion's share of the smartphone market. The iPhone, with iOS, has the high end of the market cornered with its stylish handsets and a rich ecosystem of apps. Google's (GOOG) Android is the global leader. The first Android devices didn't hit the market until Research In Motion's (RIMM) BlackBerry and Apple's (AAPL) iPhone were disrupting Nokia's feature phone business, but it has passed the competition as an open source platform.

In other words, Google is offering Android as a free operating system to any mobile device maker. RIM and Apple have entirely different self-serving strategies, leaving Android as the platform of choice for other handset makers.

Before the Microsoft deal, Nokia was struggling in support of a fledgling non-Android smartphone operating system -- MeeGo, a Linux-based open-source platform. Nokia was the only major player backing it; now, it's unsupported.

Nokia also had Symbian, which commanded a sliver of the market. Both paths were dead ends, and the company had to decide if it wanted to take billions of dollars from Microsoft to go all in on Windows Phone, or join everybody else in the Android sandlot.

Instead of competing with Samsung, HTC, and Motorola in the perpetual one-upsmanship contest that's taking place with Android devices, Nokia hitched its wagon to the one company that's as hungry as itself to matter again.

So far, it isn't working.

In a Bad Moody's

Moody's downgraded Nokia's debt grade to near-junk status earlier this week. The move came after Nokia's warning late last week conceding to investors that its business isn't doing so well.

The fallen giant is somehow generating negative operating margins on its flagship mobile phones business.

The Moody's credit rating hit had to come as a surprise. Nokia has a cash-rich balance sheet, and there was also the matter of all of the money that Mr. Softy had promised. Is Nokia's debt really a bad sneeze away from being junk?

As this all plays out, Nokia's market share continues to slip. Not everyone can afford a high-end smartphone, but Nokia's market for low-end feature phones continues to fade.

Last Chance for Nokia

It's not too late for Nokia, but all of the time that it spends now backing Windows Phone will be lost forever if things don't pan out. It's not as if Nokia can hop on over to Android in a couple of years when the allure of the Nokia brand will be a cobweb-covered memory.

After years of profitability, analysts see Nokia posting a small deficit on an 11% decline in revenue this year. Those same pros see the company bouncing back into the black next year, but Wall Street's long-term views of Nokia have been too generous in the past.

If Nokia can't get the Lumia 900 to be a hit, it will have followed Microsoft on a road to nowhere.

Every passing quarter finds both Apple and Android winning over tens of millions of smartphone owners apiece. Microsoft and Nokia may be too late, and that's an uglier problem than RIM is facing for being too early.

Nokia has the money. It has the pedigree. Unfortunately, it's missing the most important part -- the plan.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Microsoft. Motley Fool newsletter services have also recommended creating bull call spread positions in Microsoft and Apple.

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10 Comments

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Johnybernard

For compelling information and for developing a proper base for understanding of NOK, visit, vippenny stocksite . com

June 06 2012 at 5:31 AM Report abuse rate up rate down Reply
havasu46

Well, Nokia has certainly taken a betaing for the transition to Windows Phone. The EU models, 700 and 800, have been out about 4-5 months and the US Lumia 900 started shipping on April 8th after the 1st Quarter 2012 closed. AT&T's Nokia Lumia 900 has sold out in cyan (blue), black still available and white is in stores sellling fast but still not in online order site. Amazon has sold out cyan and is backordered but has black. Lumia 900 is rated top two smart phones on Amazon. I got my cyan on April 6th and it's smoking fast despite single core processor and the WP7 OS makes Andriod and IOS look like ancient OS's with grid of icons which they are. WP7 intergation and apps are awesome, camera is great and Nokia nailed the hardware design. Stock may be down but Microsoft's all in giving Nokia $1 billion a year and I'll bet there's al ot more where that's comping from. Verizin says they want in on WP7 as a third ecosystem. Android and Apple fans should stay tuned for Windows 8 and WP8 phones ans tablets this fall.

April 22 2012 at 9:25 PM Report abuse rate up rate down Reply
David Hroncheck

I don't understand what motivates the die hard Nokia fans, but It just closed $3.97. That's not the result of conspiring blogger/journalists. Get mad at the management who took the heart and reputation out of Nokia.

Lumia has to be a success if Nokia is to survive, period. Even if the product is good enough, spec-over-spec and this vs. that, you're still betting on an untested OS with no official word on Lumia upgrades to Windows 8. You have to bet folks want to be rescued from their current smartphones and that particularly Samsung and Apple make mistakes with their next generation offerings.

April 18 2012 at 7:19 PM Report abuse rate up rate down Reply
1 reply to David Hroncheck's comment
luxmore1

Sorry, but where do you get this? Windows phone is far from an untested OS, it is well know for having nice features with an easy to use interface. And even if the currant handsets can't be upgraded to the next OS (not a sure thing they won't be able to...) All the current apps will still run on the new hardware. And most, and i mean almost all, Android handsets never get an OS upgrade, where is your uprising about that? People are upgrading their phones much faster now, and with the Nokia phones being so affordable, this isn't even an issue...

April 18 2012 at 11:12 PM Report abuse rate up rate down Reply
1 reply to luxmore1's comment
David Hroncheck

@luxmore1 Yes, untested. Good or bad, most folks know what to expect from iOS and Android after upgrades and bug fixes over many years. MSFT have learned from their mistakes, we're told, but it's still largely an unproven claim. It'll take more time; Time that Nokia don't have.

You think current Lumia 900 owners who bought the "beta test is over" campaign are going to have much patience if anything (else) goes wrong with WP or denied upgrade to Apollo? Or discover issues with Zune? Also, the folks who couldn't find what they needed in iPhone and Android are not going to be an easy lot to keep happy.

April 19 2012 at 11:24 AM Report abuse rate up rate down
akcme

I am going to ask this author a question. How is Nokia Lumia 900 a poor choice than iPhone 4S? Its $200 cheaper than iPhone. It has free offline voice guided navigation system turn-by-turn. It supports 4G LTE which iphone doesn't support yet. It has 4.3'' screen which is way bigger than iPhone. WP7.5 looks way better on this phone than static icons on iphones. It beats crap out of iphone any time of the day and which is the reason that many iphone users are switching the boat. You can read the survey conducted by www.wpcentral.com. It has been sold out on AT&T and has been #1 seller on amazon. How's that a failure? If apple made 4.6'' screen phone then that would be revlutionary, right? Tired of liars in media. Apple needs to worry how are they going to deal with their competitors who have much more attractive pricing? Smartphones are just starting to go through commoditization process and that should keep apple investors sleepless and that's why, they are trying to beat competition in media. Your disclosure says that you are apple investor.

April 18 2012 at 6:12 PM Report abuse +1 rate up rate down Reply
Jennifer Matthews

Your very weak article sums up by saying that Nokia has no plan. That's entirely not true. It's Blackberry that has had no plan. Nokia, on the other hand, made a bold move over a year ago to phase out Symbian and adopt the Windows Phone platform. Last time I checked in at Harvard Business School or Wharton, they teach us that such bold strategic plans usually take some time to fully implement. But, as we have seen, and as other more-informed writers have noticed, Nokia has made enormous strides in just a year's time to crank out some very good Windows Phones -- better than Samsung, HTC, and all others who had a head start on them. So, why don't we be a little more patient, look at the positive momentum and progress that Nokia has already made, and let this thing play out. If Nokia had produced a piece of crap like that Kin several months ago, then I'd say that perhaps we have a problem. But, they didn't. They produced the most Amazing Windows Phone and we all know it will only get better with Nokia's #1 engineering and Microsoft's deep pockets and software acumen. Windows 8 will be another driver for Nokia's success. These things take time and my guess is within another 6 months we will begin to see serious traction in sales and more advanced products coming out of Nokia and then writers like this will be singing another tune.

April 18 2012 at 4:40 PM Report abuse rate up rate down Reply
czelbst

The mere fact that you are so against the Lumia 900 makes me want to buy one. I am convinced you are nothing more than a paid shill for some special interest group(s), or your bosses at Motley Fools, and I would not be surprised if they, or you, have covered calls against Microsoft and Nokia.

April 18 2012 at 3:36 PM Report abuse +2 rate up rate down Reply
Kim Comber

AT&T has sold out of Lumia 900 due to overwhelming customer demand. This is a cheap-shot article that really only re-hashes old information and goes for moronic reporting. There's nothing new, fresh or up-to-date here, a total waste of time to read. Click generator is the correct term I think.

April 18 2012 at 3:04 PM Report abuse rate up rate down Reply
1 reply to Kim Comber's comment
wkrhl

absolutely agree, shouldn't even be responding to this (stopping now!)

April 18 2012 at 8:21 PM Report abuse rate up rate down Reply