Is Nokia Finally Headed for a Turnaround?

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Change is in the air for Nokia (NYSE: NOK  ) , as the world's largest mobile-phone maker prepares to launch its new Lumia 900 device in the United States. The Lumia debut is important for Nokia because it marks the company's first real attempt to win back some share of the smartphone market. The company has paid the price in recent years for its failure to innovate when the competition was transitioning from traditional mobile devices to smartphones. But are new products enough to reactivate the business?

Let's dig into the details of Nokia's struggled turnaround to find out whether the Finnish cell-phone maker is the ultimate value play.

The power of two 
A strategic partnership with Microsoft (Nasdaq: MSFT  ) is at the heart of Nokia's attempted comeback. In an effort to upgrade its product roster, Nokia agreed last year to begin replacing its Symbian operating system with Windows. Nokia's new phone will be sold exclusively by AT&T, and at a price of $100 it costs half that of Apple's (Nasdaq: AAPL  ) iPhone, which also launched for the first time exclusively with the U.S. carrier. More importantly, the Lumia is the first Microsoft-based phone to work with AT&T's speedy 4G LTE network.

There's a lot riding on the deal for Microsoft as well. The software giant hopes the teamwork will help it build up a global mobile ecosystem to better compete with Google's (Nasdaq: GOOG  ) Android platform and Apple's iDevices. Together, Google and Apple command a whopping 80% of the U.S. smartphone market, according to comScore. With only a 4% share, Microsoft faces an uphill climb in getting its mobile devices off the ground.

The network effect
Because Nokia and Microsoft are playing catch-up to their rivals, their media ecosystem is still largely underdeveloped. For example, the Windows mobile platform offers only around 70,000 apps, whereas the iPhone features nearly 600,000 and Android more than 450,000. For more proof that Nokia's new device will have trouble measuring up, consider its other content shortcomings, such as no access to downloadable media like movies or TV shows, and limited magazine and news applications.

To be fair, Nokia's new phone does come with alternative perks like Microsoft's Xbox Live, Microsoft Office, and Bing. This may be enough to convince Microsoft fans to buy a Lumia 900, but I doubt it's enough to pull current iPhone and Android users away from their devices. In a letter from Stephen Elop last year, the Nokia CEO said, "The battle is moving from one of mobile devices to one of mobile ecosystems, and our strengths here are complimentary." He went on to say: "There are other mobile ecosystems. We will disrupt them." Those are bold words that unfortunately are largely unmerited, at least for now.  

Easier said than done 
Even if Nokia's new phone enjoys strong demand when it goes on sale, I'm not sure it will be enough to fuel a comeback. Research In Motion (Nasdaq: RIMM  ) has shown us how difficult it can be to refresh a dying mobile-device business. The BlackBerry maker's shares are down more than 90% since their mid-2008 highs, despite management's efforts to turn the company around. And as with RIM, I believe Nokia's chance of a recovery, at least in the U.S., is slim. That said, some investors will buy the stock simply because it's trading near a 15-year low at $5.08 a share. Unfortunately, price alone doesn't create a compelling buy story for me.

At least its union with Microsoft gives Nokia a budding ecosystem -- that's more than can be said for RIM. However, Nokia has miles to go before it can claim significant market share from Apple and Google. Since the iPhone launched in 2007, Nokia has lost more than 80% of its market value, according to Bloomberg. With everything riding on the success of its new Windows phone, shares of Nokia could take a turn for the worst if sales of the device disappoint.   

Not all is lost
For a full read on the situation, we'll have to wait until the Lumia 900 goes on sale this weekend. I love a good comeback story, but with rivals like Apple selling upwards of 4 million units in a single weekend, I'm worried the bar is set too high for Nokia to compete. But while Nokia still has to prove itself to investors, it's not too late to discover the stocks that are cashing in on the mobile industry today. Get instant access to The Motley Fool's free report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution". The report won't be around forever so make sure to get yours today -- it's free. 

Fool contributor Tamara Rutter owns shares of Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insight and investing ideas. The Motley Fool owns shares of Microsoft, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Google, Nokia, and Microsoft and creating bull call spread positions in Apple and Microsoft. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (5) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 05, 2012, at 8:42 PM, alexkhan2000 wrote:

    Umm... no.

  • Report this Comment On April 06, 2012, at 3:13 AM, quaternion2 wrote:

    I believe Nokia has a further advantage over RIMM, which is the huge market it still owns. After all istn't still selling the largest number of phones yearly?

  • Report this Comment On April 06, 2012, at 4:37 AM, ajaykc wrote:

    If you drive a car then you know there is a place for more than 2 companies to feed the demand of consumers.

    Faster, bigger, powerful, and brighter is not everything (GM, BMW etc), a lot of people care about cost, reliability and don't need the fastest things on earth (Toyota and Honda's success buy selling affordable cars to masses and recent success of Hyundai). I am not trying to say Nokia is not as fast as iPhone or any other android here. History doesn't predict future perfectly to be precise. Also, every company doesn't have to sell 4 million phones in opening weekend to be successful. Apple still sells far less Macs and laptops and still quite successful, just to make my point.

  • Report this Comment On April 06, 2012, at 10:33 AM, ampezzi wrote:

    look's like everybody in usa are against rim, nokia and android because only apple is good. look's like because hedge founds are long on apple. this is pathetic. rim and nokia are back. people change....and change fast.

  • Report this Comment On April 07, 2012, at 7:55 AM, cduance wrote:

    I dont think anyone cares about windows phone 7 let alone nokia smartphones. Nokia phones have always been cheap and even there top of the range N95, N97 and N900 did not make much of an impact and I had an N900 which is a decent phone but lack of apps and when compared to the likes of samsung and apple its practically irrelavant. I think they should reduce the number of SKU's they have and concentrate on emerging markets with the cheap and reliable phones that they have always made. I miss my Nokia 3210, possibly the best phone I have ever had because it just worked. Lumia 900 from the breakdown of parts inside it is as cheap as the price its being sold for.

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