Nokia May Slip Another 30% By 2013

| About: Nokia Corporation (NOK)

A while ago, I was captivated by an article that compared Nokia's (NYSE:NOK) Lumia 900 and HTC's Titan II. The author did a good job with being objective, and he presented the strengths and weaknesses of both phones accurately. The writer made a startling remark, however, that would pique the interest of anybody with even a passing interest in Nokia's stock. The simple remark was that given the "aggressive price tag" and the "massive marketing budget" of the phone, "the Nokia offering has no other choice but to succeed."

Barely four weeks later, however, I was astonished to discover that the Nokia gamble did not pay off, as the Nokia Lumia 900 still lags behind its equals, at least in terms of sales volume. Samsung was beating Nokia in sales, and with Samsung's new smartphone set for a release on June 21, the company continues to have the upper hand over Nokia. In fact, one writer notes, "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."

With the current state of things, it has become clear that Samsung has chosen its battles carefully in order to displace Nokia and become a major player in the mobile technology market. Samsung was able to ship 92 million cell phones in the first quarter, which is 9 million more than the number shipped by Nokia. Furthermore, industry leader Apple (NASDAQ:AAPL) only led Samsung by 2 million phones. This shows that Samsung is becoming a strong company in the industry, but in the meantime, it appears that Nokia is struggling and losing market share. As a result, I believe Nokia stock will be decreasing steadily until it can prove itself again.

In a related development, AT&T (NYSE:T) has unveiled an innovative smartphone that slides from the sides. The smartphone is the Galaxy Appeal, and it is another product from Samsung. Its release date is June 5 for Wal-Mart (NYSE:WMT) and July 15 for AT&T GoPhone outlets. Once again, Samsung is releasing exciting new phones that will reflect positively on the company and take more business away from companies like Nokia.

With Nokia's current difficulties, it is doubtful that it can stay alive in the highly competitive world of today. Even if it manages to somehow survive, it is doubtful that it will be a profitable company in the foreseeable future. All indications point to the fact that Nokia is late in catching up with trends and the tastes of consumers. It may only continue losing market share as a result.

In more recent news, however, some hope may remain for the company. A new breed of smartphones from Nokia is outselling even Apple's iPhone in China. Nokia has a one-percent lead over Apple in the Chinese market share. Interestingly, the massive sales being recorded are on sales of the smartphones sitting on the low end of the spectrum. Thus, given the fact that the Lumia 800C and Lumia 610C are the runts of the litter, their purported massive sales in China may not have any visible effect on Nokia's viability and profitability.

Providing more difficulty for the company, Google (NASDAQ:GOOG) has recently accused Microsoft (NASDAQ:MSFT) and Nokia of a conspiracy that would see them working together against other vendors in the smartphone business. In a formal complaint filed with European Commission, Google claimed that Microsoft and Nokia had given 1,200 patents over to a Canadian group called MOSAID. Google claims that this move from the companies would "raise the costs of mobile devices for consumers, creating patent trolls that side-step promises both companies have made." Google went on further and claimed, "They should be held accountable, and we hope our complaint spurs others to look into these practices."

Nokia has been quick to respond to the accusation, however, claiming that both Nokia and Microsoft are separate entities running different intellectual property rights portfolios. Mark Durrant-a Nokia spokesperson-comments, "Though we have not yet seen the complaint, Google's suggestion that Nokia and Microsoft are colluding on intellectual property rights is wrong."

It is still too early to tell what effect this compliant will have on Nokia's bottom line and whether or not Nokia will be vindicated in the end. Given the relationship between Nokia and Microsoft, however, it is safe to conclude that Nokia has the most to lose if things should take an ugly turn. Although the relationship seems like a partnership based on equal rights, there is no doubt that Microsoft has the upper hand. This is because Microsoft has deep pockets and Nokia is actually dispensable to it as a hardware manufacturer.

With the purported release of the iPhone 5 by September of this year, furthermore, the future has never been bleaker for Nokia and Research In Motion (RIMM). It seems that "what is ailing Research-in-Motion is that consumers prefer iPhones and Androids to the Blackberry." Some believe that this situation may only worsen with the introduction of the iPhone 5 in the fall. Things do not look promising for Nokia stock or Research-in-Motion stock if this is indeed the case.

Nokia is already in dangerous waters, and only great innovation can bring it out of its current state. Its sales are down in comparison to competitors, and upcoming releases seem to keep Apple and Samsung at the forefront of the industry. Nokia's increased sales in China will not improve the company that much, and the potential issues with the current trial may even further hurt the stock. As a result of all this, I expect Nokia stock will be decreasing, and it may continue to do this for a long time. Looking ahead, I expect the stock to slip another 20 to 30% by 2013.

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

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