Can Nokia Weather This Winter?

By Anders Bylund | More Articles
October 15, 2009 | Comments (2)

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It's cold in Finland right now -- cold, dark, and cheerless. The country's favorite son, telecom giant Nokia (NYSE: NOK ) just reported a bleak third quarter, and the stock is down nearly 11% today.

Amid increasing handset competition and weak orders for infrastructure equipment, Nokia saw sales fall 1% quarter-over-quarter to $14.6 billion. IFRS-standard net income (think GAAP for Europeans) fell to a rare loss of $0.22 per share and American depositary receipt (ADR).

Most of the red ink came from a $1.35 billion goodwill writedown on Nokia Siemens Networks, the mobile infrastructure venture Nokia runs alongside Siemens AG (NYSE: SI ) . That segment also reported a negative operating profit and drastically lower sales this quarter; luckily, Nokia Siemens is under new leadership as of Oct. 1. Nokia has no goodwill left for the Siemens partnership, so this is likely a one-time writedown, assuming the situation doesn’t get so bad that the company needs to start impairing tangible assets as well.

Back out the non-cash writedown, and you get a $0.25 pro forma profit per share instead. The handset business was decent in markets like Europe, Latin America, and the Middle East/Africa -- but dismal in North America and parts of Asia.

Management conceded that Nokia didn’t gain any market share this quarter, but hopes to reverse that trend in coming quarters. Nokia has updated its product line with new smartphones intended to go head-to-head with the Apple (Nasdaq: AAPL ) iPhone, high-end BlackBerry phones from Research In Motion (Nasdaq: RIMM ) , and the rising Android army backed by Google (Nasdaq: GOOG ) . The proof is, as always, in the gelatinous dessert, so we'll just have to wait and see how that effort pans out.

In the network equipment sector, the picture is a bit clearer -- and darker. Nokia Siemens is simply losing share to market leader LM Ericsson (Nasdaq: ERIC ) and others. CEO Olli-Pekka Kallasvuo said that the network business needs special TLC to counter "the decline in forecasted profits and cash flows." Ouch. With many markets standing ready to launch next-generation 4G networks any minute, this is not the right time to be stuck on the sidelines.

Is Nokia doomed to a long, cold winter, or will the Finns turn things around anytime soon? Tell me what you think in the comments below.

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Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. Google is a Motley Fool Rule Breakers selection. Apple is a Motley Fool Stock Advisor pick. Nokia is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

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Report this Comment On October 15, 2009, at 10:47 PM, InfoThatHelp wrote:

Of course Nokia will survive. Millions of Nokia phones will be bought this winter bringing profits to Nokia's coiffers. This winter would be a good time for Nokia to learn a lesson from Rim's decline and not repeat Rim's mistakes.
Rim products and services are closed and hardwired to its proprietary mobile operating system which is badly outdated. Worse is Rim's lock-in to being a voice/eMail/message only handset. Voice/eMail/message are not meeting today's mobile needs. Interactive apps like Google Map Street View and GoToMeeting are what people need on their handsets today, Rim is passé, so are all Rim's products and services.
Nokia would be wise to garner good programmers who alone can revive Nokia. There are very few good programmers in the world and they are the key to make or break a company.
Nokia, Google, Apple, Palm, Motorola stand to gain market shares from Rim. It is up to the programs and apps running these handsets to capture the markets which use these programs and apps. Apple is clearly in the huge lead, and gaining.
Report this Comment On October 16, 2009, at 12:28 AM, InfoThatHelp wrote:

Nokia's 11% drop today confirms a Gardner report stating that Nokia and Research in Motion will drop significant market shares to Apple although Nokia sold 4 times as many phones as Apple iPhones. Rim flooded the North American market with the Buy1 Get1 free blackberry deals but even so, Rim only 'sold' a couple millions more units than iPhone.
Gartner forecasted a 34% Rim decline in market share. But given the latest Storm 2 release's lack of competitive allure against the iPhone, this Christmas quarter may see a much steeper Rim decline in market shares lost to Apple.

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