Nokia: Struggling to be Alive

Nokia's story would have captured the imagination of any Hollywood producer.  Here is the protagonist, Nokia, who for years lived in a grand castle, supported by many, questioned by none.  Everybody acceded to their leadership in the rich land of mobile phones.  But all good stories must come to an end.  Apple came and snatched away Nokia's glory in the middle of the night. Nokia was caught off guard , that before it can cry FOUL , its fountain of wealth dried up and one by one, people started migrating to the kingdom ruled by Apple.  Nokia, in its last breath, refused to raise the white flag in surrender.  Instead, it brought forth its last remaining ammunition to win its people back, the Lumia.

Stock Price of Nokia in 5 years

Let's set things straight.  I don't need a crystal ball to declare that Nokia will never dominate the mobile handset industry ever again.  That's the sad thing about technology-based companies.  You just have to keep getting aggressive, quick to adapt to changes in user behavior, tapping your R&D resources to its fullest, just like Samsung, who seemed relentless in its pursuit of dominance in the smartphone users.  It will fight Apple in every nook it can find.  Because if you stop, you find yourself eating the dust of your competitors.

But the world is not painted black and white, at least not for this particular industry.  Nokia has other alternatives.  It painfully dropped its proprietary platform (Smart move!) and adapted Microsoft Windows to help in its difficult transition to smart phones.  Given that Windows has a lot of room for improvement, at least Nokia stood like a beacon in the sea of Android devices. But the one serious risk in the horizon is the non-exclusivity of using the Windows platform.  Soon enough, Nokia will find itself in a price war among other handset manufacturers using Windows.

One does not need half a brain to second-guess the strategy of Nokia.  Launch Lumia to cheaper price, hurting the gross margins in the process but the objective in this case is to gain the critical mass it sorely need at this point.  Once the switch has been made, they would hope that the users will get hooked to using Lumia with its windows platform.  And mobile users responded to this strategy.  Lumia sales reached 4 million units, doubling the first quarter unit sales.  And analysts are expecting sales to reach 12 million by year end.  We expect their lower-end phones would decline in the succeeding years, switching users to the higher priced Lumia.  Gross margin would suffer in the near term until it reaches a sufficient number of users and in a few years time, gross margin would level off to a more comfortable level.

Nokia's stock price in 5 days upon the release of 2nd quarter earnings

Nokia joined Microsoft in their battle against Android and IOS users.  It's an uphill battle.  And Nokia opened itself to more risks.  Without getting the exclusivity from using the Windows platform, Nokia's success would be short-lived.  Lumia's success would merely be the first wave of effort in trying to stay alive in this competitive industry.  Its success has surely caught the attention of other phone manufacturers, who as we speak, are already planning to snatch a piece of revenue from Nokia.  Nokia may just find itself sacrificing its margins now with no bright future to hold.

In this regard, I feel that Nokia's stock price has doubled in uncertainty.  Its future is blurry to me.   But at least it continues to be alive today.  They get to live another day with the launching of Lumia.  But they shouldn't rest on their laurels.  They have to go back to their desk and think what they need to do to secure their position in this fast-moving mobile phone industry.

So, did I buy Nokia stock?  Yes, I did, against the recommendation of all my friends.  "Are you nuts?", they said.  But what the heck, Im a sucker for those bullied.  And Apple and Samsung are bullies.  Once Apple launches its new Iphone on September 12 that promises to be very different from the current Iphone lines, its stock price would surely go up.  Samsung, on the other hand, seems to have King Midas as their financier.  They introduced phones after phones , trying to get all types of users out there who isn't hooked yet with the Iphone.

But Im no saint either.  I may well sell my Nokia stocks at the first sign of other phone manufacturers releasing their own Windows-based smart phones, or towards the 4th quarter of this year, if Nokia fails to show any concrete realistic plans in securing their position in the world of the mobile phones.