Last week we published an article suggesting to Northland Securities that Nokia (NOK) won't "Outperform." Several comments were left suggesting that Nokia will outperform and that Nokia is a great company to own. After researching the company, we are more confident than before that Nokia will not outperform. In this article we present four core reasons why the firm is failing to increase shareholder wealth.
The Phone Doesn't Fill Any Needs
When the original iPhone (AAPL) was released the author was one of the first people to buy the touch screen smartphone. The phone was the first touch screen phone, the apps were fantastic and the phone served as an iPod. The original iPhone served a purpose; you could get emails, while at the gym on the treadmill listening to your music playlist. As the months went on the iPhone 2 was released and more people bought the smartphone (the iPhone wasn't as "cool" anymore) enter Android (GOOG) OS based smartphones.
The Android smartphones were the first real competition to the iPhone. Droids served a purpose, they challenged iPhones. Samsung, HTC etc. were now making trendy touch screen smartphones. Samsung is now the number one seller of smartphones. The Droid is a solid competitor to the iPhone; the author's biggest problem with it is that the battery doesn't last the entire day. The iPhone suffers from the same problem.
As an investment analyst, proprietary trader at a small hedge fund and chief executive officer of a research firm and asset management company the author tends to work LONG days (and nights). A phone that needs to be charged three times a day and that keeps messing up the words I am trying to type, isn't going to cut it. That is where BlackBerry fills a need. The BlackBerry Bold (RIMM) battery outlasts the author. A 16 hour day of scheduling and rescheduling, writing and re-writing, texting traders, watching the New York Yankees, Knicks and Rangers games is no problem for the BlackBerry Bold. The Lumina 900 fills a need too.
The Lumina 900 allows people to sync to their Microsoft Outlook. Not very useful, we already get email on every other smartphones and there are several ways to easily sync your calendar. The camera isn't good, the agenda, battery, and keyboard are no match for BlackBerry, the touch screen is no better than iPhone or Android and the apps aren't cooler, better or anything else. The web browsing is in line with iPhone and Android. There is no reason for people to switch from iPhone, BlackBerry or Android because the Lumina 900 doesn't fill a need.
Who Has A Nokia Phone or Wants One?
We have searched and searched (trying another search now) and no one has, or wants a Nokia mobile phone. Very limited demand means very limited revenue and very unlikely to generate shareholder wealth.
Replacing Previous Phones
The Lumina 900 is replacing previously released phone models; that means that the old phones are going to stop selling like before and this phone has to carry the load for the company. In other words, investors betting on Nokia are betting on the turnaround of a company that says it doesn't want to make money on the Lumina. The strategic direction is WRONG, WRONG, WRONG!
Nokia is trying to compete with rivals' iPhone, Android and BlackBerry by releasing a phone on the Microsoft Metro mobile OS. The Metro mobile OS isn't selling, said another way, phones with Microsoft OS' are controlling declining market share. If Nokia released an Android OS based phone and tried to compete with Samsung and HTC, the author would give them a shot at generating revenue and earnings for investors. By releasing a smartphone running on the Metro OS you are almost guaranteed failure.
Nokia investors shouldn't be writing comments on SeekingAlpha.com saying how great the company is; they should be writing emails calling for the resignation of the Chief Executive Officer and anyone else responsible for the strategic blunder. To reiterate, Nokia isn't trying to make money selling this phone. Companies that don't seek to profit maximize end up seeking Chapter 7 or Chapter 11 bankruptcy restructuring or liquidation. Dear Northland Securities and Nokia investors, Nokia will not "Outperform."
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.