Is It Finally Time To Buy Nokia?

Jun.14.12 | About: Nokia Corporation (NOK)

The share price of Nokia (NYSE:NOK) experienced a ridiculous level of volatility over the past a few weeks. The stock often went up or down several percentage points for no obvious development with the company.

Today, on the news of deteriorating profit margin in the second quarter and possibly the third quarter, the stock plunged another 15%. It confirms my earlier article that buying Nokia at close to $3 wasn't wise:

Buying Nokia now is like picking up coins in front of a bulldozer - too much risk with too little short term returns. Patient investors should wait for more positive information confirming a turnaround in the works.

Today's job cutting news couldn't help much either. Nokia's market cap has entered $8 billion range. While competitors such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) are booming, Nokia is getting the looks of Research In Motion (RIMM). Even the partnership with Microsoft (NASDAQ:MSFT) doesn't seem to be enough.

Is it finally time to buy Nokia? Or is the time never?

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Nowadays, with new developments at Greece and Spain surfacing every day, the stock markets in Europe often go bananas. In addition to the usual volatile movements with penny stocks (<$5), Nokia has been going up and down with the European stock markets. That reminds us of a simple fact, Nokia is actually an American depositary receipt ("ADR") stock with sponsored level II ("listing" facility). In other words, its stock is not directly offered in the United States. Nokia's income, based on its recent annual earnings report, is as follows:

In the table above, Europe accounts for 31% of the Nokia's sales, the highest among different geographic regions for Nokia. Europe is certainly important for Nokia, where it enjoys a much stronger brand recognition than in the United States. However, in terms of unit sales (table below), Nokia has seen most drop in regions where people value more advanced gadgets: North America, Europe, and China. This drop, of course, was largely because of phasing out Symbian devices.

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The question is, over time, should Nokia move more with the U.S. market? Or should its movement depends so heavily on the European market? Earlier, I estimated that Nokia sells somewhere between 500,000 to 1 million units of Lumia phones in the United States. That gives approximately 6-12 million phones in 2012. By this measure alone, the weight of Nokia's sales out of Europe should increase. Of course, Nokia's Lumia sales in Europe could also increase. But the key is the U.S. market has become much more important when Nokia moves into high end smartphone market to compete with Apple and Google.

The fundamental question about buying or selling Nokia shares is: how do we judge Lumia's current and future situation? Nokia looks bad mainly because of the pain of killing Symbian, not particularly the sales of Lumia. Actually, if Nokia can sell at least 8 million Lumia phones in the United States this year, plus more sizable sales in Europe, the situation isn't too bad at all. It may sell fewer phones in total, but it should finally finish the migration from Symbian to Windows.

Technically, this kind of sell off usually has legs. It's perhaps better to wait a little longer for the second shoe to drop. Then, it's perhaps finally time to buy Nokia.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NOK over the next 72 hours.