Nokia (NYSE:NOK) was one of the first successful cell phone companies. It played an essential role in the development of the Global System for Mobile Communications. GSM was a revolutionary technology, which became the standard mobile technology that connected the masses. As a result, Nokia's stock shot up to the stratosphere, peaking in the early 2000s.
Since then BlackBerry (NASDAQ:BBRY), Apple (NASDAQ:AAPL), and Google (NASDAQ:GOOG) have taken the smartphone industry by storm, virtually driving Nokia out of business. Today, Nokia is still struggling, despite its partnership with Microsoft (NASDAQ:MSFT) and the release of its Lumia line of smartphones. In fact, the company doesn't look fundamentally sound of late:
Qtrly Revenue Growth (yoy)
Operating Cash Flow
Operating Profit Margins
Return on Assets
Source: Yahoo Finance.
Why has Nokia failed to keep up with its competitors in the smartphone market and turn a profit? Let's first compare Nokia's flagship phone, the Lumia 920, to its competitors:
Nokia Lumia 920
Samsung Galaxy S3
Samsung Galaxy S4
Dual-core 1.5 GHz Krait
Dual-core 1.2 GHz
Quad-core 1.4 GHz Cortex-A9
Quad-core 1.6 GHz Cortex-A15 & quad-core 1.2 GHz Cortex-A7
$99 on contract
$199 on contract (16GB)
$199 on contract
N/A (April 26th expected Release)
Source: GSM Arena.
In terms of hardware, the Nokia Lumia 920 is comparable to the iPhone 5 and Samsung Galaxy S3. The Lumia slightly edges out the iPhone 5 screen for highest pixel density; however, the Samsung Galaxy S3 has the best processor with four cores.
The most glaring problem with the Lumia 920 is its weight and size. At 185 grams, it's more than 65% heavier than the iPhone 5, and 39% heavier than the Galaxy S3 -- a phone with a larger display. Not to mention the Lumia 920 is also 2mm thicker than both phones. This gives the Lumia 920 a very bulky feel, which can put off consumers who are already apprehensive about carrying a larger phone.
Samsung (OTC:SSNLF), on the other hand, was able to incorporate a 4.8" screen without adding significant bulk. Impressively, the next-generation Samsung smartphone, the Galaxy S4, will have a 5" screen but weigh less and be thinner than the S3. Nokia needs to learn a lesson from Samsung. Its next flagship phone, the Lumia 928, needs to be sleek and light if it wants to remain competitive moving forward.
In terms of software, Nokia's partnership with Microsoft and its Windows Phone OS distinguishes Nokia from Apple and the various Android manufacturers. The unique user interface of the Windows 8 OS, the windows "tiles" and social networking integration, coupled with the lower price point of the Lumia smartphones gives casual smartphone users an alternative to the Apple and Android smartphones that dominate the market. This enables Nokia to carve out its own little niche in the smartphone market.
However, Nokia hasn't been able to generate nearly enough hype for its products, compared to Apple and Google. To generate more buzz, Nokia's marketing department needs to focus first on the smartphone consumer base that would benefit most from a Windows Phone -- active social networking/media users. If Nokia manages to entice a large base of Facebook (NASDAQ:FB), Twitter, and LinkedIn (NYSE:LNKD) users, it may develop the hype it needs to bring its phones back into the mainstream.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.