Nokia vs. Apple: A Sign of Weakness?

Includes: AAPL, HTC, NOK, PALM
by: Gregory Pepin

Several weeks ago Nokia (NYSE:NOK) filed a complaint against Apple (NASDAQ:AAPL), arguing that the Cupertino company was getting a "free ride" on the back of Nokia investment in wireless standard. Nokia has continued this legal work and filed a new complaint against Apple that now concerns all Apple devices (almost all at least) and it seems that the new complaint is about, "Apple's practice of building its business on Nokia's proprietary innovation."

I wasn't a fan of Nokia as a stock to hold, and I'm more and more against the company's long term future now based on these events. The reasons are simple : A few weeks ago, Nokia fired a number of R&D employees in order to cut costs. It will probably have a wonderful effect on short term margins, etc, but it will also generate a ton of side effects over the long term. By cutting R&D, Nokia is either saying it had a bad innovation project and will have to refocus on new projects (which means more time to wait for a new product) or it means there will simply be fewer researchers on projects so there will be more time to innovate.. The company so far already lost the battle for the high margin, high growth smartphone market, leaving that market to Blackberry and Apple mostly. You can also count HTC (HTC) and Palm (PALM), but they are minor players against the big two. The average selling prices of Nokia's phones are decreasing quarter after quarter, which corroborates the theory that they lost the high end market which is the most profitable and has the most growth.

Instead of investing and trying to innovate in new technology in a market that could still be reachable by Nokia, it seems that the company is now just focused on filing complaints against Apple. Do they really expect to win these complaints? The probability is very low (to say the least).

Why did they take so much time to file those two complaints ? Especially the second one against all of Apple's products? I think it would be better for the company to focus on innovation and ways to reinvent itself to capture market share in high margin businesses instead of the distraction they now created with those two complaints.

I read these legal actions as evidence of weakness from Nokia. It looks like they don't have many other plans to generate solid long term growth and are fighting desperately to capture some little percentage or return from another growth company: Apple.

If I was a Nokia shareholder I would start (if it isn't already the case) to worry about the company as it seems that they don't have many plans to surprise the market and develop the product of tomorrow.

Today's action, along with the last complaint, are two red flags Nokia shareholders should consider when it comes time to consider their actual position in the Finnish company. Add to that the lack of innovation in the high end market...

Between Apple and Nokia, I would rather, by far, pick Apple. The Cupertino firm has a growth story and is innovating every year. The potential upcoming release of the Tablet offers another venture of development, for example.

Disclosure: Long Apple