Nokia's Reemergence: Should Apple Be Worried?

| About: Nokia Corporation (NOK)

After Research In Motion (RIMM), Nokia (NYSE:NOK) is easily the next most troubled mobile handset maker as its also under siege from Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG), or rather handset makers who use Google's Android operating system, plus all of the Asia based handset players like HTC and Samsung. Moreover, Nokia was recently downgraded to junk status by Moody's. Its CEO admitted that the company's problems are a result of its inability to foresee rapid changes in the mobile phone industry, and some investors have even gone so far as to file a class action suit claiming that disappointing sales are due to phones running on Microsoft's (NASDAQ:MSFT) Windows Phone platform. With all of that in mind, where does the launch of the Apple iPhone 5 leave Nokia?

Some Quick Background About Nokia

To begin with, and before you bet against Nokia, I should mention that the Finland based company has been around since before the days of the telephone and before Finland was even a country. In fact, Nokia dates back to 1865 as a paper manufacturer when Finland was still part of the Russian Empire, while the telephone part of the business dates to 1912.

Nokia ultimately became an industrial conglomerate in the 1960s before shedding its non-telecommunications businesses in the 1980s and 1990s. From 1998 until this year, Nokia was the world's largest handset maker, but competition from Apple and Google with its Android operating system have taken their toll on the company's market share along with its stock price. Nokia, which was trading at around the $40 level in 2007, closed below the $2.80 level the day the Apple iPhone was launched and was down 42.5% since the start of the year and down a crushing 92.5% over the past five years.

Reasons Nokia May Not Be Dead Just Yet

However, every dark cloud has a silver lining - even for troubled companies like Nokia. For starters, Nokia right now is at least having some fun at the expense of the iPhone 5's mapping replacement (which has less detail, has misidentified cities, duplicated islands and put towns in the wrong spot) for Google Maps by noting in a blog post that unlike competitors (who are apparently financing their location based assets with "advertising or licensing mapping content from third parties"), it completely owns, builds and distributes its own mapping content, platform and apps.

That's because in 2007, Nokia bought Navteq, a Chicago-based provider of GIS data and a provider of base electronic navigable maps (which are also used by Microsoft's Bing Maps); in 2010, it bought Trapster, a small California based provider of free information about speed traps, red-light cameras and other road hazards. What's more, the Wall Street Journal's TechEurope blog has noted that Microsoft's upgrade of its Windows operating system will be integrated with Nokia's mapping functionality plus the Kindle Fire tablets from Amazon (NASDAQ:AMZN) will also be using Nokia's rather than Google's mapping data.

Moreover, Nokia's blog post further gloated by comparing its Lumia 920 with the Apple iPhone 5 and Samsung's Galaxy S3, and noted that its phone offers turn-by-turn navigation in 110 countries versus the iPhone's 56 and the Galaxy S3's 39 (plus the Lumia 920's system will work offline when the others won't). That may not be enough to have customers rushing out to buy a Lumia 920 over an iPhone 5 but its important to remember that Nokia still has a strong following in emerging rather than developed markets.

The second bright spot is the fact that unlike RIM which won't be releasing its BlackBerry 10 until January of next year, Nokia will launch its already announced Lumia 920 and the Lumia 820 by November. These phones are a joint Nokia-Microsoft effort that will run on the Windows Phone 8 platform and could be a make or break moment for both companies in the mobile space. However, Nokia also has competition in the Windows Phone 8 space with HTC's flagship Windows Phones (the 8X and 8S) which are said to offer better connectivity than the Lumia 920.

Finally, Nokia has been busily trying to restructure itself under the leadership of CEO Stephen Elop who was the former head of Microsoft Business Division. Under Elop, Nokia has restructured its operations, cut costs, simplified its business and launched new smartphones but even so, there is a limit to what such initiatives can do to right a listing ship. Hence, there are rumors that Microsoft or Samsung might even acquire the company - ending the pain for investors once and for all.

A Final Word About Nokia: Watch Its Cash Position

At the end of the day, a final make or break determinant of Nokia's survival may be its cash position as credit analysts at Société Générale (OTCPK:SCGLY) noted back in the summer that at the rate the company is burning through cash, it could effectively exhaust its cash reserves within little more than a year. Moreover and while Nokia ended the second quarter with net cash of €4.2 billion and gross cash of €9.4 billion, a recent article in the Financial Times pointed out that Canadian telecoms group Nortel went bust in 2009 despite having several billion in cash on its books. Likewise, it's also never a good sign for a company when its cash levels are prominently highlighted in earnings reports - especially when that company is in a fast pace industry where fortunes can change dramatically overnight (just look at RIMM and the state of its Blackberry…)

With that in mind, I still don't expect Nokia to disappear this year, but investors will need to watch its release of the Lumia as well as its cash levels, as this year may be the company's last full year as we know it.

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