Finally, Nokia (NYSE:NOK) shareholders got some relief.
After suffering 60% losses so far in 2012, the stock rallied by about 14% early on — surely a sign of hope that the problems at the Finnish firm might be at an end, right?
Nokia’s second-quarter earnings report did show some hopeful signs for the company’s new smartphone, the Lumia — a device that’s part of a partnership with Microsoft (NASDAQ:MSFT), which is providing the operating system software. Unit volume for the Lumia doubled quarter-over-quarter to 4 million, thanks to good uptake in China and Latin America.
But without strong traction in the U.S., the device just won’t be a true success. The problem? Apple (NASDAQ:AAPL) still makes iPhones, and Samsung and others still make strong devices backed by Google‘s (NASDAQ:GOOG) Android operating system — and the U.S. loves ‘em. Nokia’s top competitors also have advantages like huge cash hoards, rich developer ecosystems and strong brands.
Nokia must find a way to transition from its legacy business, or else it will keep incurring substantial losses — which, by the way, totaled $1.73 billion in the second quarter. The only silver lining is that Microsoft continues to pay hefty fees to Nokia.
And even this relationship might prove problematic. Microsoft is aggressively marketing its operating system to other device manufacturers, so how will Nokia really be able to differentiate its offerings? It could be tough, especially as the smartphone market gets more crowded with new models.
The good news is that Nokia appears to be getting more agile as it reduces its numbing bureaucracy. But to get traction in the market, it will take more than a couple quarters of better-than-expected-but-still-awful results.
And that 14% surge? By the time I hit “publish,” it had waned to just 4%. Looks like the early bout of optimism has quickly turned into buyer’s remorse.
For good reason.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of the upcoming book How to Create the Next Facebook: Seeing Your Startup Through, from Idea to IPO. 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.