What to Expect From Nokia for the Rest of 2012

Once a mobile-industry leader, Nokia (NYSE: NOK  ) is being crushed by tech giants Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) . With Nokia's market share quickly diminishing, many wonder what the second half of the year has in store for the handset maker. Shares are down more than 58% year to date, yet some investors are still hoping for a turnaround. Now that we're midway through 2012, let's look at where the company has been and see where it's headed in the remainder of the year.

One and the same
Things came to a boil last month when Nokia announced plans to cut 10,000 jobs in an effort to reduce costs. The telecom giant will attempt to refocus its business by closing various research facilities around the world, including two distribution centers in China. Nokia's fall from grace is not unlike that of Research In Motion (Nasdaq: RIMM  ) .

Similar to Nokia, the BlackBerry maker failed to innovate at a critical time when rival tech titans Apple and Google were rolling out new and advanced smartphone and tablet devices. RIM also said last month that it would slash its workforce as a result of diminishing sales.

Despite the similarities between the two companies, Nokia (thankfully) has gotten new smartphones to market this year, which is more than can be said for RIM.

An unlikely pair
Nokia's strategic partnership with Microsoft (Nasdaq: MSFT  ) hasn't worked out quite how management had hoped. The two joined forces last year in a deal to launch a line of Lumia 900 smartphones in hopes of capturing a larger piece of the mobile pie.  

However, instead of lifting each other up, the duo was weighed down by complications involving their new Windows-based smartphones. The phone had a problem with dropping high-speed data connections.

Following the incident, Nokia played damage control by offering a $100 refund to all customers who had purchased one of its new PC phones. While these returns were only issued for a limited time, the ordeal forced Nokia to eat another unnecessary expense.  

It also turns out Nokia's Lumia 900 lineup won't be upgraded to Microsoft's Windows 8 when it becomes available later this year. If that's a deal-breaker for you, perhaps the phone's new price point will entice you to buy.

In a seemingly desperate attempt to hawk its new devices, Nokia and AT&T are now offering the Lumia 900 smartphone at a much more attractive price of $49.99, with contract. While this should help the handset maker move some of its inventory and perhaps offset costs, it's not likely to have a meaningful effect on Nokia's bottom line.

Asset fire sale 
In another move to realign its ailing business, the world's largest mobile-phone maker is selling off its Vertu subsidiary. The transaction was made for an undisclosed amount. However, given Nokia's deteriorating revenue, any extra cash can't hurt.

A future sale of Nokia Siemens Networks, which is a joint venture between Nokia and Germany-based Siemens, is not out of the question, either. The network-equipment business has been losing money for some time now and is already in its second year of restructuring. While these job cuts and asset sales are intended to save Nokia from oblivion, I think a more likely outcome is that we see the company's market share and profits continue to slip.

Future earnings under pressure 
On one hand, Nokia has plenty of cash in its corner -- just over $6 billion in net cash. On the other, it has been burning through that money to build its Lumia product line and support the transition from its Symbian operating system to Windows.

Nokia reports its second-quarter earnings on Thursday, although I wouldn't get my hopes up. Revenues will likely spend the rest of 2012 underwater, despite management's cost-cutting efforts. Nokia's tight relationship with Microsoft will be key to its survival going forward, but for now I'd still steer clear of the stock.

A better idea
Today, devices powered by Apple's iOS and those running on Google's Android platform dominate the mobile scene. In fact, together the two techies command around 80% of the U.S. smartphone market, according to comScore. That's not to say that Microsoft might not one day gain favor in the space with its growing product portfolio. However, I can say with confidence that I don't think Nokia will ever fully recover from its recent challenges.

Luckily, there are other opportunities for investors in the fast growing mobile market, including Apple. It might surprise you to learn what stock is cashing in on the mobile revolution. You can find out now in this free report from The Motley Fool's top analysts, titled "The Next Trillion-Dollar Revolution." To find out how you can make money in the space, get instant access to this free report.

Fool contributor Tamara Rutter owns shares of Microsoft and Apple. Follow her on Twitter, where she uses the handle @TamaraRutter, for more Foolish insights and investing advice. The Motley Fool owns shares of Microsoft, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Microsoft, and Google and creating bull call spread positions in Apple and Microsoft. 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. The Motley Fool has a disclosure policy.


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