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Nokia (NOK) certainly would be a bargain for one of its competitors. Moody's (MCO) lowered Nokia's bond rating from Ba1 to Baa3 on June 15. That means the ratings company now considers Nokia's bonds junk. It also means that Nokia's stock may be even worth less than its market value.

The stock could be worth less than market value because the company had a $1.7 billion operating loss in the first quarter of 2012 and projected restructuring costs of $1.6 billion for the next two years. These losses exceed the estimated value of Nokia's phone business which is $3.5 billion according to the Wall Street Journal. So Nokia actually looks like it is burning more money than it is actually worth.

The question we have to ask is why Moody's didn't give Nokia that junk bond rating earlier? Nokia certainly deserves it. These figures make it look like there's no way Nokia can make money or turn itself around without a major restructuring. The problem is that the company may not have the cash to finance that turnaround. Nor does it seem to have the capability to borrow to finance that turnaround.

This crisis will definitely make Nokia it a target for both competitors and bargain-hunting financiers and hedge funds. The bottom feeders are going to be attracted to Nokia because its bonds are actually paying more than its common stock right now. Purchase by such a bottom feeder would not boost Nokia's stock and would probably drive its share prices down farther.

Turnaround Efforts have failed

Moody's decision shows that Nokia CEO Stephen Elop's turnaround efforts have been a dismal failure. Not even such drastic moves as announcing a plan to eliminate 10,000 jobs at Nokia have helped the company. Elop's alliance with his old employer, Microsoft (MSFT), has actually hurt Nokia and left it more vulnerable to Android-using competition.

The situation is likely to get worse because it is clear that Nokia no longer has the cash to enter the Tablet market. Nor does it seem to have the ability to successfully market new smartphones no matter how well-designed they are. That means its days as an industry leader are probably numbered.

The big winners here are probably Apple (AAPL), Google (GOOG), and Samsung, which will get immediate bumps in share prices from more Nokia bad news. Other smartphone manufacturers, such as Huawei and ZTE could receive a boost as well. The share value boost may not be that big because of the size and scope of Nokia's troubles. It's hard to see how this would help Google or Apple share value that much.

The most likely outcome from these developments is that Nokia will continue to slide. Any potential buyer is going to stay in the background in the hope that Nokia will get even cheaper. That's likely because there seems to be no way Nokia can be turned quickly.

Windows 8 Will Not Help Nokia

The only real hope the company has is that Windows 8 will be a success. The problem with that line of thinking is that Windows 8 hasn't even been shipped yet. Even if Windows 8 is a success it will take several months for it to give a boost to Nokia. It doesn't seem possible that Nokia will be able to stay in operation long enough to see if Windows 8 will work with its current losses.

Yet Nokia seems to be pinning its hopes on Windows 8, its chairman of the board; Risto Siilasmaa, still thinks Windows 8 will save it. Mr. Siilasmaa told Finish TV that he thinks Windows 8 will provide a seamless work environment that will enable Nokia users to integrate their phones with other devices. That maybe so but it will take several months to a year to see if it is true.

Even if Windows 8 works it might not help Nokia because Windows 8 is primarily a business operating system. It is hard to see a new PC operating system is going to help a phone manufacturer increase its sales. Even if it can be easily integrated with phones so can existing systems such as Android. So Mr. Elsop's line of reasoning is actually rather hard to swallow.

It is also hard to see Windows 8 giving any sort of boost to Nokia's stock. After all phone buyers are not familiar with it yet. That means there will be no boost in Nokia sales and cash flow from Windows 8. Instead the optimism about Windows 8 is probably going to drive down Nokia stock values because it is hard to see how the Microsoft operating system will translate into any additional cash flow.

Siilasmaa also said that Nokia has a contingency plan if Windows 8 didn't work out. Unfortunately, he did not say what that plan was or how it would be implemented. Such misplaced optimism and lack of detail is not likely to help Nokia's stock. It's likely to cause Nokia to lose what little value it has left because it shows that Nokia's management is not dealing with the situation.

It is hard to see how Nokia would be able to implement any sort of contingency plan in its current condition. To implement any successful plan such as a switch to Android Nokia would need a lot of cash. With its bonds now junk and its' sales plummeting it is hard to see where that cash would come from.

Is Nokia a Good Value Play?

The question that value investors have to ask is Nokia a good value stock at this time? The most obvious answer would be "no" because the company does not seem to have any sort of realistic turnaround plan in the works. There is obviously no contingency plan to replace Windows 8 and no plans behind mindless job cuts.

Nokia obviously needs a lot more than job cuts. It needs a real strategy based on a realistic view of the current smartphone market. Yet, it does not seem to have anything like that. Instead, Nokia bet on another company's unproven operating system.

So, it is easy to see why Nokia's bonds are now junk. It put its future in another company's hands. Yet, despite the low price, this company is hardly a bargain, because it has not proven it can keep market share, let alone gain it.

Value investors would be well advised to stay away from Nokia for the foreseeable future because it is going to keep bleeding cash. A newer streamlined Nokia might emerge at some point in the near future, but that's probably a couple of years away.

It would be best to take a wait and see attitude toward Nokia at this point. The company has some good assets and possibilities, but it needs major work to turn it around. So, Nokia is one of those stocks you should keep an eye on because it might start turning around at some point. If it does start turning around Nokia could be the biggest bargain out there. Unfortunately it won't be making any money for a long time so at this point Nokia is a speculative play. Stay away from the Finnish company until it actually turns around.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Nokia's Junk Status Is Spot On