Nokia Corporation (NYSE:NOK) has had a rough time in the last few years. The company failed to grow into the smart phone sector as it should have and embarked on a disastrous attemt to carve its own way with its Symbian OS and its Ovi App store, two names that the few who remember would like to forget. Things had looked to be going a little better for the company since a deal in 2011 to become the flagship manufacturer for Microsoft’s Windows Mobile platform which is expected to become a greater force in the industry later this year. Today was not a good day for the company and despite hopes to the contrary it has not been a good week for the Finnish handset manufacturer.
Yesterday Societe General released a note to investors that downgraded expectations on Nokia and cut its recommended strategy on the company from Buy to Hold. Today Barclays PLC (ADR) (NYSE:BCS) released a statement doing the same to the company’s stock and setting a new price target of $4 for the company. At the time of writing the company’s stock was rapidly approaching that level. It was down 4.37% to $4.03 and may continue to fall in the final hour of trading. After the company revealed that its lower end phone business was actually losing money some analysts are suggesting they sell it, which to Nokia means selling its entire history. The so called “feature phone” market has been adversely, and obviously, affected by the change to modern smart phones. In the market where feature phones are still popular, poorer and emerging markets, there exist a huge amount of alternatives often with Nokia branding that makes making sales difficult. Counterfeit electronics are big business and with high end smart phones competing there doesn’t seem to be a market for a median priced under featured phone like Nokia’s.
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Selling their traditional feature phone company would mean a big change of strategy at the firm and a resolute concentration on smart phones in the future. The other major device manufacturers have already shed at least most of their range of feature phones and Nokia is left dragging its feet and so cannot be seen as fully committing to a smart phone future. That having been said the company’s Lumia range has offered critics a chance to look at a Windows phone that has excited them for the first time in years so the company does have a future in the area if it can develop to its potential. Windows Phone 8 will arrive later this year or early next year and should offer a thrilling new competitor in the smart phone market if the right application developers can be reigned in to work with the company. The market may be crying out for an alternative to Android and Apple systems and Nokia could wedge itself in there to become a more prominent company.
It faces a difficult transition however. The company released a warning before its earnings report that showed a quarter to quarter drop in smart phone sales from 19.6 to 12 million handsets and showed the Lumia range had shipped just 2 million units. The company had anticipated sales in the range of 3.5 million for Lumia handsets. The company lost sales in part due to reports that the Flagship Lumia 900, which was launched in the US last week, regularly lost its data connection. The company now anticipates a $126 million loss in the first quarter of the new year. Revenue is down a huge 40% as the company is seeing reduced volume of sales and lower priced devices across the world. The release does not paint a stable picture for the future of the company and there are certainly rocky times ahead.
Where can Nokia go from here? If they continue with their current strategy of continuing to sell its feature phones even as the market for them evaporates it risks committing several sins. The first of which is losing money on that business which is the most obviously bad. The second is weakening the company’s brand. Nokia wants to provide excellent fully featured smartphones and in order to do that it has to remove the connection with Symbian and its less featured phones. Sub dividing the brand with the word Lumia will not be effective enough. Customers want a clear and consistent view of what they’re getting like Apple offers with its iPhone and even Google attempts to offer in the fractured Android world with its Nexus. If the company does not fully commit to moving forward it may as well give up on the risky Windows strategy and instead migrate to become a mid range Android manufacturer. The current half-hearted attempts leave it facing possible extinction and those worries should not be taken lying down. Nokia wouldn’t be the only handset manufacturer to plummet in recent times. They should read Blackberry’s notebooks and disregard the lessons therein. In Apple’s world you have to be flexible and fast to change to compete.
Nokia will publish its first quarter results on April 19th.