Should You Buy Nokia at These Bargain-Basement Prices?

It's not easy being green -- or being Nokia (NYSE: NOK  ) . The Finnish cell-phone giant is dodging a veritable bullet storm these days.

Where to begin? Oh, let's just dive in headlong.

Buy me -- please!
Last week, rumor had it that Microsoft (Nasdaq: MSFT  ) wanted to buy Nokia outright. That made sense on the surface because of the already-tight connection between the two companies: Nokia CEO Stephen Elop took that job straight out of Compton … I mean, Redmond. That connection then led to a software partnership, in which Nokia is ditching years of Symbian and MeeGo development in favor of Mr. Softy's highly unusual but as-yet unloved Windows Phone platform.

But Nokia denied the rumor, calling it "baseless" -- and shares plunged without hestitation. It didn't help any that the denial came as an aside to dramatically lowered guidance.

This week, the rumor mill started up again. This time, the supposed Nokia buyer was Korean electronics giant Samsung. Once again, Nokia flatly denies any behind-the-scenes talks because "Nokia is not for sale." The original rumor hardly moved Nokia shares to begin with, so this hand-washing didn't hurt much.

Still, that's two rumored buyouts shot down in the span of a few days. It's starting to smell like attempted market manipulation -- just not a very successful campaign.

Liquidity issues
Nokia's handset business is not the only part of the company drawing fire. The balance sheet is another popular target.

On Tuesday, credit-ratings powerhouse Fitch cut Nokia down to a just-above-junk BBB- rating with a negative long-term outlook. On Thursday, Standard & Poor's followed suit, placing Nokia on "CreditWatch with negative implications." Both firms cite falling sales and pressured margins as reasons for their downgrades.

Fitch even discounts Nokia's $16 billion pile of cash -- which, even when considering debt, leaves the company with a net balance of $10 billion -- because companies in Nokia's situation "can feel threatened to rapidly spend accumulated cash in a number of ways when faced with steep changes in market-share dynamics." In other words, Nokia might be tempted to blow all that cash on pointless acquisitions or other panic moves, which wouldn't help shareholders any.

But wait -- there's more!
The fun didn't stop there. Chief Technology Officer Rich Green picked this backdrop against which to take personal leave -- and local newspaper Helsingin Sanomat reports that he's not coming back. That's because he -- again, the company CTO -- disagreed with the technical direction Nokia is taking.

Overriding the CTO in matters of technical strategy makes you wonder why Elop bothered to hire Green in the first place. It's also another vote of no confidence from an executive supremely poised to know something about what Windows Phone means to the company.

Whither Nokia?
The carnival of errors has gone so far that component suppliers from little Skyworks Solutions (Nasdaq: SWKS  ) to mighty Texas Instruments (NYSE: TXN  ) are pointing fingers at Nokia for causing them trouble.

Next to perennially unloved Research In Motion (Nasdaq: RIMM  ) , it's hard to come up with a mobile specialist matching Nokia's level of market skepticism. Both stocks have dropped more than 35% year to date.

Granted, arch nemeses Apple (Nasdaq: AAPL  ) and Google, whose iPhone and Android product lines caused all this trouble to begin with, have hardly set the world on fire in 2011, either. But weak pricing on Apple and Google tempts analysts to pile on with "buy" ratings thanks to the value pricing those stocks have come to represent. Nokia's low price and increasingly meaty dividend yield (now at 9.6%) have been met with downgrades and reiterated "hold" ratings at best.

There's no love to go around, nor any high hopes of a drastic turnaround. Nokia's stock is seen as dead money as Android and Apple are eating its global market share, hold the ketchup.

Elop isn't making any friends by claiming that Apple's closed ecosystem essentially created the need for an open Android system, as he did at a conference in London this week. It's starting to look as though the supposed savior of Nokia has no clue what he's dealing with. Did Microsoft plant him there just to gain a reliable hardware partner? If so, it looks like that sneaky strategy backfired.

Does Nokia stand a chance in this market with its cart firmly attached to Microsoft's mobile horse? I don't think so. Remember that Palm once commanded a market cap north of $50 billion before falling to superior competition and selling out to Hewlett-Packard (NYSE: HPQ  ) for a $1.2 billion song. Nokia is not too big to fail.

Fool contributor Anders Bylund owns shares of Google but holds no other position in any of the companies discussed here. He wishes he could make $1.2 billion on a song. The Motley Fool owns shares of Google, Texas Instruments, Microsoft, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Google. Our services have also recommended creating a bull call spread position in Apple and a diagonal call position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 (8) | Recommend This Article (6)

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 June 12, 2011, at 10:23 PM, mhonarvar wrote:

    whats with the constant rim bashing...

  • Report this Comment On June 12, 2011, at 10:43 PM, Riskysam wrote:

    There is no constant bashing going on here. Anyone following the smartphone market could have seen this happening 2 years ago.

    Nokia picked the wrong partner.

  • Report this Comment On June 12, 2011, at 11:43 PM, GraceAlone wrote:

    I've lost about 80% of my original investment in Nokia as I've waited for it to turn around. Is there any hope at all for Nokia? What's a Fool to do at this point? I'm open to suggestions!

  • Report this Comment On June 13, 2011, at 12:55 AM, tcsonic wrote:

    I'm betting on the 145 year old company Nokia. They don't have to be the #1 phone maker to be a great company that pay's big dividends. It is tough for them right now as the industry changes, but the technology today will be old in a few years, Who knows who will be the leader, but Nokia will be there competing and most likely paying a dividend that some of the leaders today don't have the faith in their own business plan to do.

  • Report this Comment On June 13, 2011, at 9:25 AM, thethreestooges wrote:

    Here is another rumor. GOOG to buy NOK, put android all nokia phones. GOOG will become a complete package going after AAPL market. Let see what MSFT will do next.

  • Report this Comment On June 13, 2011, at 3:47 PM, hank321 wrote:

    It is not clear what will happen until next spring; there is a mountain of new product in the pipeline, and I am not ready to write off Nokia until some of this product reaches the market, beginning around 2012.

    I am not surprised the CTO quit. He presided over a 5 year decline.

  • Report this Comment On June 13, 2011, at 7:56 PM, CROIC wrote:

    hank321 wrote: "It is not clear what will happen until next spring"

    And it is not clear what will happen after next spring either.

  • Report this Comment On June 14, 2011, at 12:49 PM, chris12tom wrote:

    check out this article on NOK:

    http://bull-bear-battle.blogspot.com/2011/06/nok-value-trap....

    NOK looks fairly cheap and enticing at these prices...

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