What Is Samsung Doing To Nokia?

Includes: NOK, SSNLF
by: Emerging Money

By Jonathan Yates

Emerging market investors can be excused if they don’t remember Novell Inc. or Wang Computers, once prominent in the world of technology.

It’s also understandable if emerging market investors who own shares of Alcatel-Lucent (ALU), like those owning Nokia (NYSE:NOK) rather than Samsung (OTC:SSNLF), wish to forget issuing the buy order with their broker.

Novell was a hot name in technology before its revenues collapsed, taking its share price down until it was acquired for $6.10 a share by Attachmate Corp. in November 2010. Like Nokia, Novell was partnered up with Microsoft (NASDAQ:MSFT). Wang Computers could not find a buyer and filed for bankruptcy in 1992.

Alcatel-Lucent, another tech train-wreck in the mobile industry, is now under $1.50 a share. Over the last five years, Alcatel-Lucent was once close to $15 a share. It was just downgraded on April 30, 2012, by RBC Capital Markets with a target price of $1 a share.

Samsung has put Nokia Corporation on track to the same fate. While Samsung just replaced Nokia Corporation as the biggest seller of mobile phones in the world, reports are already out that bankruptcy is imminent for Nokia Corporation.

Samsung has put Nokia in a position where no one would want to take over a company like Attachmate Corporation did with Novell. At best, a private equity or hedge fund company might purchase the company and sell it piece by piece. But that has not yet happened and probably won’t until after a bankruptcy filing.

Both Eastman Kodak and American Airlines tried to sell assets but potential buyers waited until after the companies collapsed into bankruptcy so the prices would fall. Private equity groups and hedge funds are not known for mercy or charity.

Competition from Samsung has Nokia close to filing Chapter 11, as the trajectory of the stock manifests. Year to date, the share price has fallen by 36.10%. Over the past 52 weeks for Nokia, it is down more than 60%.

The contrast between Nokia and Samsung could not be more stark.

Samsung is posting record earnings while Nokia’s fall short of Wall Street expectations. New products from Samsung like the Galaxy series are doing well while the Lumia series from Nokia has been one costly disappointment after another, in every meaning of the word. When Samsung recently issued bonds, the rates paid were lower than South Korean Government debt. The bonds from Nokia have a junk rating.

Wang Computers, Alcatel-Lucent or Novell: at this point, the best that Nokia shareholders can hope for is a low-single-digit share price.