Is Nokia Toast? Cell Phone Maker Still Has All the Wrong Answers

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Nokia phoneShares of Nokia (NOK) have nearly doubled since bottoming out last summer, but it's premature to call this a turnaround for the Finland-based wireless phone company that until recently was the world's largest handset maker.

If anything, at least one analyst sees this as a selling opportunity.

Raymond James analyst Tavis McCourt issued a rather cautious note on Wednesday morning. Yes, the company's Lumia 920 is getting hard to find in some markets. Nokia's new phone -- powered by Microsoft's (MSFT) Windows Phone 8 mobile operating -- is showing "solid" demand, but channel checks through the smartphone's stateside carrier AT&T (T) shows that it's well behind in popularity to the iPhone or Samsung's Android-fueled Galaxy S3.

In other words, this may be more of a supply issue on Nokia's end than a surprising global appetite for the new phone.

History Repeating

We've been here before.

There was plenty of buzz during the springtime release of Lumia 900 through AT&T. Microsoft was pouring a ton of money into the device. Remember those "whoa -- Megan Landry alert" commercials with the guy trying to impress his coworker with the phone's curved edge and slick navigation tiles? Well, Megan may have been impressed, but smartphone buyers and investors weren't.

A software glitch led to a convenient $100 credit for all early buyers of the Lumia 900 through AT&T, essentially making the $99 phone better than free.

It wasn't enough. Nokia shares went on to hit an all-time low.

The Market Is Only Getting Harder for Nokia

The Finnish handset maker was the undisputed top dog when traditional feature phones were the mobile phones of choice.

Surfing the Web, retrieving email, and playing Angry Birds on a phone seemed impossible just a few years ago. Folks were perfectly content making calls, collecting text messages, and playing the rudimentary Snake game.

Then the smartphone revolution erupted. It may have started with corporate types tethering themselves to their BlackBerry and Palm devices, but it went mainstream after Apple (AAPL) introduced the iPhone in 2007.

These days, Apple's iPhone and a growing list of devices running Google's (GOOG) open source Android are the platforms of choice. Those two operating systems currently account for more than 85 percent of the global smartphone market.

But rather than jumping on the Android bandwagon, Nokia wasted its time trying to champion too many fringe operating systems. MeeGo? Symbian? Nokia was out of its element as a feature phone maker in a smartphone-leaning marketplace. Samsung recently overtook it as the world's largest maker of wireless phones. Accepting big money from Microsoft to back Windows Phone is shaping up to be another bad decision for the company that, coincidentally enough, is now run by a former Microsoft executive.

A Sucker's Rally

Nokia isn't going away anytime soon. Despite having its debt grade downgraded to near junk status earlier this year, the company was flush with cash even before Microsoft came into the picture.

Nokia is also flexing its intellectual capital. It's asking a California court this week to enforce an arbitration award that would keep Research In Motion (RIMM) from selling gadgets with wireless networking capabilities without negotiating patent royalty rates with Nokia first.

However, even if Nokia succeeds, it's really a matter of the weak beating up on the weaker. Neither company is a force in phones these days.

There's a reason why Nokia's stock has been trading in the single digits for nearly two years. The same Nokia that was a growth darling in the 1990s is expected to post its first annual deficit in ages this year. Analysts see revenue falling 24 percent.

Yes, despite being in what many consider a hot industry, Nokia is actually shrinking. Its bread-and-butter feature phone business is fading, and it's not anchored to the mobile platforms that matter. It could've been Samsung. It could've hitched its horse to the open-source standard in Android. Instead, Nokia got greedy, and now it's paying the price.

Wall Street isn't holding out hope for a turnaround in 2013. Analysts see another loss next year with revenue falling yet again.

Optimists will argue that Microsoft may acquire Nokia, but the software giant is still suffering from the indigestion of recent big deals that didn't pan out. Those same bulls will argue that Nokia still has a chance to finally bet on the right operating system, but that ship has apparently sailed.

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




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12 Comments

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Mason

Nokia can not get into the Android and IOS app market..... it is the apps which make the
smartphone what it is today... Cellphones are going the way of the do-do bird

December 03 2012 at 3:44 PM Report abuse rate up rate down Reply
gpa817

The point this misses, if anyone spent any time at all last Spring reading about the Lumias, they knew Microsoft was already on record as starting from scratch on Windows 8, meaning the 900 would be obsolete in six months. I've been an iPhone user sine 2008, and waited until this October to *upgrade* to the Lumia 920. I agree, there are not as many apps, and that's frustrating, but I don't use several million apps, I use about 20, and I have the most of those. The rest I knew I'd have to do some waiting...

December 01 2012 at 10:59 PM Report abuse rate up rate down Reply
Jetncat

They still make a reliable phone with no issues. I-phone & Galaxy can't claim that. And in the end you need a reliable phone not a fancy game boy.

November 30 2012 at 2:02 PM Report abuse +1 rate up rate down Reply
hagglkdave

Nokia’s main problem is that they are running Win 8 RT on an ARM processor and with this architecture they are limited to RT Apps and cannot run legacy Windows applications. If they were to base their phone on the Intel Atom processor you’d have a phone that could be docked into a tablet or ultrabook form factor and use it as a PC. That would be killer.

November 30 2012 at 12:30 PM Report abuse +1 rate up rate down Reply
dfoster

Apple tells you what they want you to have, just like the US automakers of the 60's. Other manufacturers listen and provide what consumers want.

November 30 2012 at 11:31 AM Report abuse +1 rate up rate down Reply
GadgetHead7

Nokia is not greedy, together with Microsoft they are market creators. 40 millions have upgraded to Windows 8. It is natural they will buy Win 8 Phones because the transition is so natural. Everybody have jumped on the android and iOS bandwagon, surely they will need some new phones later after they are bored with old OSes and segmented markets? And this website can only commented by using Microsoft Internet Explorer, and you want to talk about the battle of the OSes?

November 30 2012 at 5:35 AM Report abuse +1 rate up rate down Reply
1 reply to GadgetHead7's comment
herr dana

Wow, such a delusion. Win 8 users will buy windows phone devices. Android and IOS users will get bored and buy win phone? OK...

Why does Microsoft hire such geniuses like you as market guerrillas is beyond me. At least try to like make it look like it's your own opinion and deserve the money you got from MS.

BTW I'm writing this command from safari on a macbook air.

Or is there a subtle sarcasm in your comment that I'm missing?

November 30 2012 at 1:28 PM Report abuse rate up rate down Reply
hgrimball

Nightgray, I sure hope you are right, I own 1k NOK @ 5.86.

Harvey

November 29 2012 at 7:40 PM Report abuse rate up rate down Reply
Gio Casova

gooogle fan boy response - good luck sucker as your data and privacy get sold and you sit there wondering why you cannot get insurance or are getting solicitations you never asked for

November 29 2012 at 7:19 PM Report abuse rate up rate down Reply
Gio Casova

what makes Android the right choice? which flavor, is it cool that non certified apps have a fied day with your data? is it cool that googles main ambition in life is to take your data and sell it ? or maybe you bummed that you do not have a choice of 8 different pull my finger apps?

Franky I am tired of fanboy endoresements from people that have no clue.

November 29 2012 at 7:17 PM Report abuse rate up rate down Reply
nightgray

The 920 sales and early demand has already surpassed that of the 900. The history repeating theory by analysts over the last couple of weeks just doesn't add up anymore. This article's tone reminds me of the articles comparing the iphone 3G to the T-Mobile G1. http://www.iphonehacks.com/2008/10/iphonetmobileg1.html Say what you will about nokia having all the wrong answers, because to me they have come up with some great answers. Honestly, the 920 is a great phone and the best I've ever owned. I have an Iphone 4s, a galaxy SIII and the lumia 920 at the moment and the lumia 920 is the only phone i use now.

November 29 2012 at 5:48 PM Report abuse rate up rate down Reply
1 reply to nightgray's comment
herr dana

It sure is, and you are the only person on the planet owning all three phones and choosing to use Lumia. Lumia may be a nice phone, but your story seems a bit too stretched out to be believable.

November 30 2012 at 1:33 PM Report abuse rate up rate down Reply