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Nokia: Burn, Baby, Burn!

The tech company's 'burning platform' keeps on burning


Shares of phone giant Nokia (NYSE:NOK) plunged around 14% as the company announced a warning about its performance.

The company is forecasting weak results for the first quarter, including a possible -3% operating margin for the handset business instead of the previous expectation of breaking even. And the deterioration is expected to continue in Q2.

Interestingly enough, it’s been a little more than a year ago since Nokia’s new CEO, Stephen Elop, wrote a stinging memo to the troops. Referencing a 1988 oil platform blast in the North Sea, Elop said, “We too, are standing on a ‘burning platform,’ and we must decide how we are going to change our behavior.”

Unfortunately, that fire’s still raging.

Nokia is suffering from the slow macroeconomic environment as well as a lack of consumer interest in its offerings. It’s really a classic squeeze, as Google’s (NASDAQ:GOOG) Android phones get the lower-end market and Apple’s (NASDAQ:AAPL) iPhones dominate the premium buyers. It leaves little room for Nokia to make a viable business.

It’s true that Nokia is showing a bit of traction with its Lumia models, which are a part of its venture with Microsoft (NASDAQ:MSFT). The company said it sold more than 2 million units in the first quarter. But that represents just a portion of the 12 million smartphones it sold, which were just a portion of the 71 million total hand-sets it sold — and that’s down from 108 million hand-sets in the year-ago period.

At the same time, Nokia is seeing weakness in emerging markets, where it previously has had an edge, such as in India, China and Africa. Again, competition is becoming a big problem.

Nokia can make a comeback, but it will be a longshot. As Elop mentioned in his famous memo, the mobile business is not just about having cool hand-sets. Rather, the key is building a vibrant ecoystem that can attract top app developers like Zynga (NASDAQ:ZNGA), Pandora (NYSE:P) and Yelp (NASDAQ:YELP).

It’s also about getting the interest from major carriers, such as AT&T (NYSE:T) and Verizon (NYSE:VZ).

But creating such an ecosystem is extremely expensive and time consuming, and Nokia’s already behind the 8-ball on this one. Meanwhile, the competition won’t just stand around waiting for Nokia to catch up.

At least for now, it looks like Nokia will be dead money for quite some time.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”“All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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