Being the CEO of a struggling company is not an enviable job and sadly, this is the position which Nokia's (NOK) CEO, Stephen Elop, finds himself in presently. When Elop's predecessor could not stop the decline that was hitting the company hard, Elop took over in 2010 and made certain moves that were geared towards improving the company's future. One such move was the switch over to the Windows Phone platform, which turned out to be a completely disastrous move. This was reflected in the company's most recent earnings report.
Nokia's quarterly earnings showed that the company suffered a loss of over $5 billion in the first three quarters of 2012, and a loss of $1.2 billion in the third quarter alone. This was compared to a loss of $519 million in the third quarter of 2011. This led to the massive layoff of most of the company's staff. The company has seen a steady decrease in smartphone sales since 2010, but it came to a head with the company phasing out its range of Symbian handsets. While Nokia was working towards getting its target audience to buy its Windows phones, the company invariably killed the Symbian phone without knowing it. This happened when the company failed to release new versions of Symbian, and instead channeled its attention to Windows phones.
To prove that Nokia's efforts in trying to make people buy these Windows phones were fruitless, late into the second quarter of 2012, people were buying more Symbian based phones than Windows phones. Although the company recorded an increase in smartphone sales in the third quarter, this was the direct result of its re-branding of the Nokia S40 smartphone platform, which was renamed Asha Touch. Although it cannot really be said if the new classification is accurate or not, it has not been able to increase the company's sales as expected, and goes a long way to show the extent to which the company has fallen since its 2010 peak.
One thing that led to this disaster is the flawed assumption of the big players in Nokia, especially Elop, who assumed it would be more profitable to swim in the Windows pond than make head way in the Android market. Elop made the mistake of assuming that Windows phone would compete favorably with iOS and Android. When it comes to WP sales, the company is maintaining a high percentage, but that is not enough. The second quarter WP showed that the Windows phone maintained a 5th position at 3.5% with Android, iOS, BlackBerry and Symbian coming before it. The company initiated the transition process of the Windows phones in such a way that it only ended up almost killing its main cash cow, Symbian, even before its customers embraced the product.
A lot of analysts would agree with me that for several years running, Nokia maintained a good standing as the global leader as far as handsets and smartphones were concerned. But the scenario has changed completely. Samsung now sells around three times the number of Android smartphones compared Nokia's Symbian, S40 and Windows phones. This makes me wonder if Nokia is really ready to compete with Samsung. If it is not, then it better start focusing its attention on investing in another type of platform or move into infrastructure. While all this has been happening to Nokia, Microsoft (MSFT) shares are hitting new 52-week highs, trading close to $33. Recently though, the stock traded under $29 per share, and this was as a result of a correction that was carried out in the tech sector concerning weak PC sales and earnings.
Even in the face of all these headwinds, there are lots of viable reasons why investors should consider buying Microsoft. One of the reasons is that Microsoft, not basing its source of revenue on Windows alone, has other businesses that have high growth potential. Microsoft is a global leader as far as the video gaming industry is concerned. It owns Skype and it will launch its new Surface tablet very soon, which is designed to come with Windows 8 and a cover that also serves as its keyboard. The tablet is currently getting lots of positive reviews.
The next company I will discuss is Verizon (VZ). A lot of Verizon investors have enjoyed higher than average dividend yields. Verizon's stock price has also been on the rise. But the telecom sector has maintained an uptrend which may soon come to an end and lead to a pullback of over 10% to 15%. It would make good business sense for investors to take their profits and wait for a pullback which creates even better buying opportunities. It is not always easy selling off stocks that have done very well, but, if you are embracing the strategy of "buy low and sell high," your safest bet would be to sell here.
This brings us to Google (GOOG). This search engine and online media giant reported third quarter earnings that fell below street expectations, and this led to a halt in the trading of its stock. With its shares rate declining to around $676 at an estimated PEG ratio of 1.05 and PE multiple of 16.5 for fiscal year 2012, Google's stock is nothing but an excellent buying opportunity since it has the high potential of bouncing back.
I think Nokia should heed to the candid advice of Jean-Louse Gasée, former Apple (AAPL) Europe president. Gasée advised Nokia to fire Elop and switch from Windows to Android. On my own taking, I am envisaging that rather than heed this advice, which shows a high level of firm belief in accountability, the board would continue groping in the dark until the light of the Windows failed platform strategy shines beyond denial.