Seeking Alpha
Profile| Send Message| ()  

It appears that Nokia (NOK) is facing a lot of competition in the market and it's coming from several different angles.

Nokia is struggling to keep its head above water. Plain and simple. At this very moment, Samsung is in the lead, in terms of mobile phone sales. Samsung has successfully outsold Nokia and even Apple (AAPL) (which has lost its shine in the basic phone market) in emerging markets in the first quarter. There was a time when Nokia was easily the leader in this corner of the mobile phone market, but that time is long past.

In India, for example, Nokia's sales decreased by half over the last three years. The company has also been criticized for not keeping up with the tastes of the middle class in India, a segment of the population which has been growing quickly.

Samsung not only overtook Nokia as the top seller of phones in general, but it also beat giant Apple in terms of the sale of smartphones. Nokia's big mistake, as far as I'm concerned, was to abandon its own smartphone operating system and switch to Microsoft's (MSFT) Windows. The Windows system was largely untested and untried, hence a decline in popularity for Nokia phones. Nokia only sold 12 million smartphones in the first quarter, which is quite a low number, when you consider the 44.5 million smartphones that Samsung moved. In addition, Samsung will soon be releasing a new generation of its Galaxy S which is likely to keep the mobile phone company well ahead of the game for some time. Samsung has also found a way to lower the prices of its smartphones, which means that more people are likely to swing for a Samsung than a Nokia.

Apart from switching from Symbian, Nokia's own operating system, to an untried Windows package there are also two other issues which contributed to Nokia's downfall. Nokia simply did not think far enough ahead. When Apple released the iPhone, companies like Samsung immediately scrambled to try and match it. Nokia seemed to be unaffected by the change and did very little to upgrade its smartphone technology in order to compete at a meaningful level with these competitors. In short, Nokia was far too complacent. Nokia also lacks the innovation needed to drive sales, as many of the new phones its released lately have not had the technology people now expect form a smartphone. In addition, Nokia's offerings have simply not looked as attractive as Samsung or Apple products. In the modern world, people do care about how trendy a phone looks and until Nokia makes an effort to catch up in that regard, it will continue to experience these sharp declines in sales.

Companies such as Motorola (MMI) understand how important outward appearance can be when it comes to mobile phones, as can be seen by the company's recent launch of a stylish version of the Motorola i867w in white. The phone is said to be "designed for people with style and a lot to communicate". For the average user, this feature may trump expanded technologies, assuming, of course, that the basic advanced capabilities are in place.

This means good things for Google (GOOG), as the company's Android operating system lies at the heart of most of Samsung's smartphones. It's also a better operating system option than the Windows system currently offered by Nokia.

Nokia simply cannot offset the major consequences of "falling sales and doubts over its product strategy". Thus, Nokia shares have dropped significantly. Unable to replicate the success of new smartphones launched by its competitors, Nokia reported an enormous loss in the first quarter.

Nokia had high hopes for its new Lumia 900 in the US. Unfortunately, sales were far from outstanding and the company still experienced a huge loss in the first quarter. This, and the fact that the stock was recently downgraded to "junk" by analysts, has led to Nokia's attempt to sell its UK luxury phone division, Vertu, to private equity firm Permira. Permia plans to make the most of the brand's reputation in certain markets to generate a huge profit for itself. If this is enough to offset losses for Nokia, we will have to wait and see. The talks are now at an advanced level, but the outcome of the sale is yet to be determined. Vertu makes very expensive and pricey mobile phones, and it seems that Nokia is making the right choice to take a huge cash injection from the sale while it can.

Other mobile phones producers are also struggling in the current economic climate. Ericsson (ERICY) also reported a steep fall in profits despite strong sales in North America. The problem lies with the hard-pressed European telecommunications operators which can no longer afford to spend huge amounts of money on wireless networks. The networks are costly and represent a huge and unnecessary expenditure in the current financial situation. This has crimped the company's economic growth despite "increasing mobile data flows as a result of booming sales of data-hungry smartphones".

Samsung has really been the horse leading the race for some time now. Apple already won the race and has moved on to greener pastures, though Samsung may soon join there. Nokia was once a great competitor but really let itself get lost when it should have been looking toward the future.

Even if the company manages to pull off a sale of Vertu, and for a handsome reward, the worry is that it has no new technology to push with an investment. At this point, it's going to take a lot to get Nokia back on track, and that may mean more than simply pushing new phones. Look for the company to get creative if it gets a new line of cash. If it does not, my advice would be to steer clear of Nokia.

Source: Nokia: Is This $3 Stock Running On Fumes?