Can anything go right for the investors of Nokia (NYSE:NOK)? The latest disappointment came on Tuesday, when the company’s stock price plunged more than 13% — its lowest point in over a decade — after the company said its devices and services unit may not be profitable in the current quarter. This is the case even though the global smartphone industry is seeing powerful growth.
On Wednesday, the stock was down another 7%.
But the problems are not short-term in nature. Keep in mind that over the past 10 years that the average annual return for Nokia was a horrible -8.8%.
So is there no hope, or can there be a comeback? To help answer these questions, let’s take a look at the pros and cons for Nokia:
New products. To boost prospects, Nokia has teamed up with Microsoft (Nasdaq:MSFT) to develop a smartphone on the Windows platform. The expectation is that it will hit the market during the Christmas season.
Nokia will definitely benefit from the marketing heft of Microsoft as well as its software capabilities. As for Nokia, it can leverage its own extensive global footprint.
Restructuring. Like other tech giants, Nokia has a bloated cost structure. To deal with this, the company has indicated it will cut about 7,000 jobs. However, in light of the low stock price, the company may take even more aggressive actions — hopefully soon.
Valuation. The shares of Nokia are dirt cheap, with a price-earnings ratio of a mere 9.8. The company also pays a hefty dividend yield of 5.6%.
Cons
Competition. When it comes to the high-end smartphone market, Apple (Nasdaq:AAPL) is the overwhelming dominant player, and it has added to its position with the wildly successful iPad.
As for the low-end market, Google’s (Nasdaq:GOOG) Android platform is becoming the standard.
However, this leaves little room for Nokia to differentiate itself — except with lower prices. Consider that – over the past year – its world market share has gone to 25% from more than 30%
Leadership. Nokia’s CEO is Stephen Elop, a former executive from Microsoft. While he is making some headway, it’s going to be extremely difficult for an American to deal with the cultural issues of Nokia, which is a Finnish company.
Visibility. The company will not provide full-year guidance and has withdrawn its projections for the third and fourth quarter. It appears Nokia has little confidence in the direction of its business.
Verdict
The roots of Nokia go back to 1865. In other words, the company knows how to make changes and eventually thrive.
But over the past few years, Nokia has been exceedingly slow in dealing with its core issues. As a result, it will easily take several years to get back on track. This is something that Elop has readily admitted.
In the meantime, it’s likely that the stock price will tread water as Apple and Google continue to move forward. Thus, the cons outweigh the pros.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
