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Color Me Unimpressed, Nokia

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"It's very sad to see
The ancient and distinguished game that used to be
A model of decorum and tranquility
Become like any other sport
A battleground for rival ideologies
To slug it out with glee."

--"Quartet," from Benny Andersson, Bjorn Ulvaeus, Tim Rice musical Chess

Nokia (NYSE: NOK  ) used to be one of those models of decorum and tranquility. Quietly dominating the global cellphone markets, the stock would rise softly over the years while also paying out a decent dividend. What's not to love about that?

But in the age of the iPhone, the Finns have lacked a suitable response to Apple (Nasdaq: AAPL  ) with disastrous results for shareholders. The smartphone wars forced Nokia into an alliance with Microsoft (Nasdaq: MSFT  ) that looks tantamount to a sell-out, and the company has a lot to prove over the next few quarters. Nokia's stakes have never been higher.

The first-quarter report Nokia published this morning was a small step in the right direction. When I say "small," I mean "minuscule."

Revenue rose by 9% year over year, but that boost was powered by software sales and network installations; handset revenue lagged behind at just 6% growth. That's on 13% higher volumes of smartphone units. More unit growth than dollar growth can only mean one thing: lower average selling prices. While the company managed 9% higher selling prices in old-fashioned mobile devices compared to last year, its smartphone selling prices fell 6% versus last year and also took a steep hit compared to last quarter.

Worse, pro forma operating income took a 14% dive as those network contracts hardly pull in any profit at all and the booming Navteq software division is still too small to matter much.

In other news, Nokia and Microsoft signed their mobile partnership ahead of schedule. CEO (and former Microsoftie) Stephen Elop called it a "win-win" deal thanks to "the complementary nature of our assets." I read that as, "Thanks to the fact that our businesses have nothing in common," but that's just me.

Elop also noted that the first quarter saw Nokia move "from defining our strategy to executing our strategy." Well, I suppose the payoff from the Microsoft deal will show up toward the end of the year, if there is any. For now, I remain suitably unimpressed by how Nokia's formerly super-smooth machinery is coughing and sputtering, and I'd expect the stock to drift even lower over the summer. If you truly believe in a Microsoft-based turnaround, that would be the time to buy shares.

Want to know more about Nokia, either out of genuine interest or morbid curiosity? Add Nokia to your Foolish watchlist.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. He does hold National Poetry Month in high regard. Microsoft is a Motley Fool Inside Value pick. Apple is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a bull call spread position on Apple. Motley Fool Options has recommended a diagonal call position on Microsoft. The Fool owns shares of Apple and Microsoft. Alpha Newsletter Account LLC owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (6) | 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 22, 2011, at 2:50 AM, sapiska wrote:

    The quarter was positive and Nokia again beat street estimates by 40%.

    Why so negative. Are you getting paid from those hedge funds who are 110 million shares short with NOK by now?

  • Report this Comment On April 22, 2011, at 5:03 AM, dlp wrote:

    I agree with sapiska - The Nokia/Microsoft deal is an excellent deal for both companies - both of which = despite their capabilities and profits remain unloved. I think NOW is the time to buy both because when this thing takes off it will be too late. I thought Motley was all about alternative strategies- and yet here we have more of the " same ol same ol " garbage from every other pundit in the business. Shame on Motley Fool- what happened to the premises you started with ?

  • Report this Comment On April 22, 2011, at 10:41 AM, VickieDayton wrote:

    This article is overly negative given what was said during the earnings call. After all, the company is making a huge change in its operations and the explanation of the MSFT partnership in the Q&A after the conference call makes sense. NOK turned down Android because of developing commoditization of the platform and that's not an issue with MSFT. The number of shorted shares is declining and the upcoming annual dividend is over 5.5 percent at current share pricing. Granted, this may not be a great stock to trade but there seems to be potential for capital gains for those with longer horizons, say by the end of 2011.

  • Report this Comment On April 22, 2011, at 3:27 PM, ajaykc wrote:

    I know there are so many apple fans out there and I am sure they have good reasons to be. I am NOKIA fan and I own one and have used several of their phones from low end to mid-range end. I have used samsung from low end to behold. Samsung was a good choice until my low-end smart phone broke and I complained to t-mobile and they never admitted and then the whole story. The bottomline, samsung phones have poor quality signal and dropped calls which I never have with Nokia. Nokia offers a plenty of features in their smartphones for free which you will have to buy in other smartphones such as iPhone.

    I have no doubt that Nokia have had issues but I have faith in Mr. Elop, I have heard him in two conference calls and he talks like a leader and he is bold enough to admit weaknesses in his company than dodging them.

    I think Nokia needs to partnership with ATT, T-mobile, Verizon, Sprint more aggressively and sell phones through contracts which are subsidized in US market at least and it can change their fortune in like snapping the finger. I found only one smartphone on t-mobile which was sold through contracts and none at Verizon, Sprint and ATT. In US people don't like to buy the phone itself and use it as pre-paid phone. They like paying like $100-200 and then pay $70-100 every month. I think Nokia will do better sooner it understands it.

    I am in for this stock because it offers value with 6% dividend even though I get scared at times with negativity in the media as most of them are cheerleaders of apple.

    The bottomline is, I have been proven wrong again and again by changing my mind behind value investing. Few examples

    UXG bought at 3.3 and sold somewhere 3.8 or so and now at $8-9.

    ALU entry at 2.8 and sold at 3.4 or so now at $6.

    STX entry at $11-13 sold at $8-14 and now at $18.

    TA entry at 2.5 and exit at $3.5-4 now at around $7-9.

    I have many more examples where patient would have paid me a lot but it didn't because I got lost in noise.

    I should stop reading fools or wallstreet for their value investing ideas.


  • Report this Comment On April 22, 2011, at 3:53 PM, ab670 wrote:

    Reading 'analysis' this infantile makes gladdens my heart at having taken a long position in the stock.

  • Report this Comment On April 24, 2011, at 10:37 AM, sapiska wrote:

    "The number of shorted shares is declining and the upcoming annual dividend is over 5.5 percent at current share pricing."

    You are right with the dividend, ex-dividend date is 3rd May.

    The number of shorted shares is actually increasing. NOK was up 3-4% in Europe after positive Q1/11 results, but at the US opening there were 10 million shares sold short in one hour and it was sold to negative territory. I think some big guys noted this and bought it back to positive and kept the quote by force +0.01 dollars positive until the end. There are now 120 million shares sold short.

    I wonder what kind of rumors those guys are going to spread next, when their paid journalists have already said that everything is wrong with this company, it struggles against Apple and Google and has lost all the hope. Despite this Nokia has around 30% global market share in smart phones, but the stock is priced like this share is 0% and the mobile phone business of the Nokia has no value or negative value?

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