Why Nokia Should Just Say "No!"
Jun 19th 2013 8:30PM
Updated Jun 19th 2013 10:30PM
Rumors are a part of life for investors -- nothing new there. For a company like Nokia , which is in the midst of a turnaround effort, the rumor mill always seems to work overtime. For a number of reasons, let's hope the latest rumblings aren't true.
Rumor has it
When Nokia and Siemens amended their joint venture agreement regarding Nokia Siemens Networks, each party was able to do what they pleased with their share of the partnership. Siemens really got the market talking when it decided to actively solicit bids for its minority piece of the NSN pie.
Rumor has it Siemens has approached several private investment houses, including Blackstone and KKR, to gauge interest in its share of NSN. It makes sense for Siemens to unload NSN as it streamlines holdings to concentrate its business lines, and now some are suggesting that Nokia may take a similar path. Hopefully, Nokia will just say "no," for a couple of reasons.
Nokia's recent fiscal Q1 results were a pleasant surprise for many. Generating non-IFRS (Europe's version of non-GAAP financial results) operating profitability along with positive net cash in Q1 in 2013 was a dramatic improvement compared to losses in both key metrics last year. How'd Nokia do it? The short answer is NSN. Yes, Nokia benefits from a strong patent portfolio valued by some at an estimated $4 billion and producing more than $600 million in revenue annually, but its NSN's consistent growth that brought Nokia back from the financial cliff.
Another rumor, and the reason behind Nokia's share price briefly jumping to over $4 a share on Tuesday, was that Chinese telecom giant Huawei Technologies was interested in buying Nokia. All it took was a Huawei executive suggesting there would be some synergies between it and Nokia, and the rumor mill was off and running. After it was shot down, Nokia's stock price eased, but the die's been cast. How long before the next Nokia buyout rumor hits the streets?
Why Elop should say, "Thanks, but no thanks"
In addition to improving Nokia's overall financial results, what NSN gives it is time: Time for high-end Lumia smartphones running Microsoft's Windows phone OS to gain traction. Time is critical right now, particularly because the Microsoft/Nokia lovefest appears to be working. Windows phone is making significant progress in the domestic OS market, and that's good for Nokia. Why? According to a Windows Phone developer blog, 80% of Windows phones sold globally are manufactured by Nokia, led by its flagship Lumia 920 device.
Yes, Google's Android and Apple's iOS continue to rule the roost here in the U.S., with 51.7% and 41.4% OS market share in Q1 of this year, respectively. While Windows domestic OS market share in Q1 was a mere 5.6%, that's up from last year's 3.8% and indicative of a growing acceptance for the new kid on the block.
Unseating industry heavyweights like Google and Apple was never going to happen overnight; they're both too established for that. But Windows Phone adoption is coming along, even growing market share faster than Android in Q1 of 2013. And Nokia continues to introduce smartphones with new features and functionality, even as Apple shareholders are bemoaning its lack of innovation. Based on Apple's stock price movement since introducing iOS 7 to developers about a week ago, it doesn't appear shareholders are convinced the new OS is innovative enough.
After everything Elop and Nokia shareholders have endured lately, it seems a shame to consider dumping NSN now, or worse yet the entire company, when it appears there is finally light at the end of the tunnel. With NSN's financial results continually improving, and Nokia's high-end smartphone gamble with Microsoft beginning to pay off, selling all or part of the company now would only appease short-term investors. For the sake of long-term Nokia investors, let's hope Elop just says "no."
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The article Why Nokia Should Just Say "No!" originally appeared on Fool.com.Fool contributor Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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.
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