I'll Buy Nokia If The Company Dumps Windows And Elop

| About: Nokia Corporation (NOK)

We've lost quite a bit of friends this week in our discussions of beleaguered phone giant Nokia (NYSE:NOK). Remarkably, despite the company's significant loss of market share over the past couple of years, it's a wonder how the word "giant" is still an applicable description. But Nokia, despite its struggles with execution, still has a meaningful position in the market, including its Lumia line of phones, which recently grew 27% sequentially. So what's the problem?

How has the company become better?

This is the question that Nokia investors are unable to answer - at least not with a straight face. My problem with the company at this point is that when Nokia's CEO, Stephen Elop, took over the company two and a half years ago, he brought quite a bit of promises - many of which are now broken. Although Elop seems to be a great manager, he is not the visionary that Nokia needs at this point.

He described his role as being "focused on delivering great experiences to consumers," while also saying that he spends an enormous amount of time listening and believes "the truth is out there, if you listen for it, you can hear it." The truth is Nokia has underperformed since his arrival in September 2010. Upon which, Elop threw Nokia's prior management under the bus while expressing his displeasure for how they had Nokia poorly positioned against rivals like Apple (NASDAQ:AAPL) and BlackBerry (NASDAQ:BBRY).

Elop, at one point described Nokia as "standing on a burning platform" - pretty strong words for a new CEO. But is Nokia any better today? However, his gloomy description of the situation, including saying that Nokia had to make major changes to survive, was not a surprise. After all, new CEOs are not installed because their predecessors were performing at a high level. However, if a new leader is going to arrive with such authority, he's setting the bar pretty high.

Unfortunately, so far, Nokia has been grossly unimpressive under his tenure - by every measurable standard. Still, Nokia bulls disagree. Consider this, when Elop arrived in late 2010, Nokia was still the market's leader in worldwide phone sales. At the time the stock traded as high as $10 per share. This is even though Nokia (at the time) posed no meaningful threat to Apple and BlackBerry.

For that matter, neither LG nor HTC were losing sleep over Nokia's status. Plus Google's (NASDAQ:GOOG) Android was only in its infancy. Here again, the situation has not changed. Nokia is still no competitive threat in the smartphone market. The only difference between now and when Elop first took over is that Nokia's stock is almost 85% cheaper. Remarkably, Nokia investors are still rushing to the company's defense. It makes no sense.

It's time to ditch Windows

It's time for a change at Nokia. At this point the company's future is in doubt and Microsoft's (NASDAQ:MSFT) Windows Mobile OS should no longer be a part of it. It remains a mystery as to how Nokia insists on betting its brand on Windows when it has proven unsuccessful for Microsoft. Meanwhile, Samsung, which has 43% of the mobile market, continues to capitalize on the ubiquity and reach of Android. Apple's iOS has seized the remaining portion, or 57% of the market.

What's left for Nokia and Microsoft? I'm no longer convinced that Nokia cares about growth until it switches to Android. In fact, I've also argued that BlackBerry's OS would be a significant upgrade. Investors disagreed, while allowing Elop to go on a cost-cutting spree to shore up the company's balance sheet. But why does that matter more at this point than growing market share?

Elop, at one point, showed that he was willing to try new things and put Nokia on a new path - now's the time to do it. He needs to put Nokia on a new path, while also preserving the working assets of the company, including the Nokia Siemens Network segment, a joint-venture with Siemens (SI), which has been the company's strongest business over the past couple of years in terms of growth. The good news for Nokia is that its Lumia line looks pretty strong. But consumers are not enamored with Windows, which hurts an otherwise nice design.

Bottom Line

It's hard to make an investment case for Nokia here. Aside for the cheap share price, I really don't see what the attraction is. However, I would buy the stock today if the company would make a change in leadership and dump Windows in favor of Google's Android for its phones. I think Scott Forstall, Apple's iPod creator, would make a great replacement for Stephen Elop. Although Elop is a good manager, he's not the person suited to take the company to the next level. His closeness to Microsoft, and in particular, Steve Ballmer, is too much of an overhang.

Disclosure: I am long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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