A Revival at Hand?

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It's been an interesting 2004 for Nokia (NYSE: NOK). The year started with lower sales and eroding market share. Then competitorsMotorola (NYSE: MOT) and Sony Ericsson (Nasdaq: ERICY) both reported strong results. Then reports confirming Nokia's market share losses were released. The series of debacles was such huge news that we dueled over the phone maker's prospects.

But Nokia is nothing if not a giant wielding a big ol' club in the way of free cash flow, in excess of $6 billion, according to Morningstar. It's also the world's leader in mobile phones, and its market share, at 32.5%, is nearly double that of Motorola, its next-closest rival. Plus, a resurgence in the stock price from a two-year low achieved earlier this year demonstrates that investors think a revival is at hand.

Of course, for those wanton hopes to become reality, Nokia will have to make good on its promise to boost market share. It's an ambitious goal, since competitors are lowering prices and consumers are asking for smarter devices, which puts pressure on costs. Still, CEO Jorma Ollila told analysts in a meeting in New York yesterday that his plan is to own 40% of the mobile phone market long term.

Over the short haul, the key to the strategy will be to introduce 40 handsets next year, up from a planned 35 this year. The new phones will be richer with features than earlier generations, too. For example, two-thirds of new handsets will have cameras, while a deal with Good Technology will create a new Nokia-branded smartphone.

In casting itself as an innovator, Nokia is setting the bar pretty high and taking on not only its traditional competitors but also wireless phone and data combo device makers palmOne (Nasdaq: PLMO) and Research In Motion (Nasdaq: RIMM). Investors will be tempted to ask whether it's the right strategy, but that's the wrong question. The truth is that Nokia has no other choice if it really expects to ignite the revival Ollila and investors want.

For related Foolishness:

• Nokia's shot was more than Good; it was smart.
• Nokia knows it's better to underpromise and overdeliver.
• Back in April, fellow Fool Seth Jayson suggested we not bet against sisu.

What's your take? Does Nokia have the right strategy? Can it win in the smartphone market? Is it reasonable to think the firm will ever earn 40% market share? Debate all this and more at the Nokia discussion board. Only at Fool.com.

Fool contributor Tim Beyers loves the idea of a smartphone, but he's too cheap to buy one, or any of the stocks mentioned in this story. For now, at least. You can view Tim's Fool profile and stock holdings here.