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Just over a decade ago, the Finnish mobile-phone maker Nokia (NYSE: NOK ) was the darling of the technology sector, and no share portfolio was complete without a chunk. In fact, if you bought some in the late '90s you could have made yourself a tidy packet -- provided you sold at around the time of the tech boom, before they started to slide.
Although there was some respite with a bit of a surge in 2007, the shares have fallen from their $56 peak of early 2000 to $7 today -- while over the same period, shares in iPhone maker Apple (Nasdaq: AAPL ) have risen around tenfold, and shares in Google (Nasdaq: GOOG ) , the maker of the Android platform, are up about fivefold since flotation.
And on Tuesday of this week, the news for Nokia shareholders got worse, as the company issued a pretty severe profit warning.
Sales for the second quarter of 2011 are now going to be substantially lower than the forecasted range of 5.3 billion pounds to 5.7 billion pounds, and the company's operating margin will be substantially below the previously estimated 6%-9%.
Perhaps even more worryingly, the company has withdrawn all guidance for the full year. Further details of the current situation are expected toward the end of next month.
All of this comes on the back of last month's news of the loss of 7,000 worldwide jobs, as the company refocuses its strategy on smartphones -- a change that few will disagree is perhaps just a wee bit late.
Nokia is still hoping that its new smartphones, based on Microsoft software after it dropped its own Symbian system, will be released in the final quarter of this year -- more than four years after the first iPhone was launched.
What went wrong?
Nokia is still the world's largest seller of mobile phones (I have two, and they're both Nokia), but it's the plain old "just for talking to people" segment that it dominates, and there's less and less profit to be had there -- my last Nokia phone cost me less than 5 pounds, and even allowing for its subsidized price, there's no margin for anyone in that.
Nokia was successful in pioneering mobile-phone development because those old phones were what Nokia was best at. It was a telecommunications company, and it knew all about electronics, radio reception, signal processing, power management, and the like.
Software was somewhat secondary -- get the communications protocols right, and provide a relatively simple user interface.
But today's phones aren't phones -- they're versatile computers that just happen to have telecommunications as one trick in the bag. And that's not what old-style telecoms companies do best -- it takes smart software companies. Symbian's development was too slow, it was too late to the smartphone arena, and it was quickly outclassed by Apple's iOS and Google's Android.
Dropping Symbian was a good move for Nokia, but what came next could, in my opinion, turn out to be a disaster. Instead of adopting the obvious Android platform, Nokia plumped for Microsoft.
One has-been jumping into bed with another has-been is rarely a sound technological plan, and though Microsoft may have many years of profitable business ahead of it from its very large legacy PC market, when it comes to new stuff like phones and MP3 players, it's a disappointing also-ran.
Windows Phone 7 is still in its very early days, and whether it will make it into new Nokia phones by the end of the year, as planned, is far from certain. Android, on the other hand, has been out there in many devices from a whole range of manufacturers for several years, has had a lot more real-world testing, and is popular. Would a jump to Android have impressive Nokia smartphones ready and bug-free a lot sooner?
Why did Nokia head for Microsoft's bed? Well, the answer to that seems simple -- the company's new CEO, Stephen Elop (the first non-Finn to head the company, having taken over the reins from Olli-Pekka Kallasvuo in September 2010), was previously the head of Microsoft's business division. I do hope Nokia shareholders will not come to rue his appointment.
And the competition …
Meanwhile, in a week's time, Apple will be hosting its 2011 Worldwide Developers Conference, with Steve Jobs delivering the keynote -- details of iOS 5 are expected, together with iCloud, the company's upcoming cloud-services development. Eyes will not be focused on Finland.
Reckon my fears of the death of Nokia greatly exaggerated? Let us know, below.
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