3 Issues Dogging Nokia

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A shell-shocked economy, spiraling debt at financial institutions, or just plain bad management -- on any given day, investors can name a number of reasons to sell a stock. Yet while panic is never beneficial to investors, it's still a good idea to play devil's advocate with investments from time to time.

Consider cell-phone king Nokia (NYSE: NOK  ) . The company has delivered some amazing growth in the past, but in Motley Fool CAPS, a significant number of the 2,555 members weighing in on the Finnish company are giving reasons to be bearish today. I've already plucked out some of the common bullish rationale backing Nokia, so here are three counterpoints, courtesy of CAPS:

Stiffer competition: Nokia may still be the leader, but investors argue that competition from Research In Motion (Nasdaq: RIMM  ) and Apple (Nasdaq: AAPL  ) laid on traditional phone giants like Nokia and Motorola (NYSE: MOT  ) is stronger than ever before, seriously eating into Nokia's market share and putting its leadership at risk.

Heavy cuts: Nokia recently said it's cutting its sales forecast, reducing its dividend, and following wireless brethren Sprint Nextel (NYSE: S  ) and AT&T (NYSE: T  ) by cutting its workforce. Nokia may not be in the dire circumstances that others are in, but some investors are concerned that the giant is going on the defensive precisely when it should be pouncing on weakened competitors.

Profitability pressure: Similar to Qualcomm (Nasdaq: QCOM  ) , Nokia has felt the pain of the economy on its bottom line. Earlier this year, it reported worse-than-expected fourth-quarter profits, experiencing rapid deterioration in its markets, and gave a sobering view of 2009. Considering the macro pressures facing the mobile market -- and the dominant slice that Nokia holds -- many investors are opting for the sidelines and waiting for a brighter day to buy Nokia stock.

Of course, Nokia has survived and thrived in the past despite dozens of obstacles. But the question about whether now is the best time to buy a proven leader is why CAPS is such a great resource to augment your own analysis.

To see what the very best CAPS members are saying now about Nokia, just click on over to Motley Fool CAPS and have a look -- it's all free, and even open to your opinion.

More Foolishness:

The Motley Fool Inside Value service looks for solid companies like Nokia whose shares are beaten down to dirt-cheap levels. To see what companies the analyst team believes are priced way below intrinsic value today, take a free 30-day trial.

Fool contributor Dave Mock wishes he could choose punt as an option on his mid-term exams. He owns shares of Qualcomm and Motorola and is the author of The Qualcomm Equation. Nokia and Sprint Nextel are Inside Value picks. Apple is a Stock Advisor recommendation. The Fool's disclosure policy consumes 15,000 calories a day but burns it all playing the Wii.

Read/Post Comments (3) | Recommend This Article (2)

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 13, 2009, at 2:02 PM, theburn16 wrote:

    AT&T hasn't made any job cuts in their wireless division, they only cut land line employees. they are in fact hiring more employees in the wireless division

  • Report this Comment On April 13, 2009, at 3:26 PM, saunafool wrote:

    So, let me get this straight.

    Reason #1 is stronger competition.

    Reason #2 is that they are cutting when they should be attacking their "weakened competition."

    Neither one matters. Nokia is a long term winner because it makes money on entry level phones in the emerging markets and has a dominant market share in India and China. It has taken a pass on the U.S. market largely because it can't make money on the free locked phone deals the American carriers tend to favor.

    I'll take profits in India over no profit in the U.S. any day.

    Second, the valuation. Nokia sells more smart phones than RIMM and AAPL combined, but it trades near single digit P/E and has about a 3% dividend yield with a pile of cash on hand.

    The one risk is that Nokia is locked into their Symbian operating system which is not compatible with many corporate email networks, so their smart phones are locked out of the U.S. corporate market--a space where they should be making money.

  • Report this Comment On April 13, 2009, at 5:04 PM, marv08 wrote:

    Hm, Nokia may still be selling more smartphones than RIMM and AAPL combined, but while RIMM and AAPL increased their market share by 97% and 246% in 2008 over 2007, Nokia sales were almost flat (+0.8%). The market share of their smartphone OS Symbian decreased from over 62% in 2007 to 47% in 2008. Stocks are driven by the outlook and so far Nokia has not introduced anything that indicates a trend change. If they stick with free phones and sinking ASPs, investor confidence will not pick up and, even worse, developers have long begun to not even have Symbian on their lists... you will barely find any discussion not surrounding iPhone, RIMM, Android, Pre and WinMob development. Nokia has moved from the perceived smartphone "inventor" (not completely true, I know) to the ugly child on the list.

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