Mobile phone manufacturer Nokia (NOK) sells a lot of cell phones, but so far has not been able to sell meaningful numbers of phones in the high value smartphone sector. Results for Nokia have been trending downward since revenue last peaked in 2007. For 2011, the company saw revenue decline by 9% to 38.7 billion euros($50.56B). Operating profit slid from a positive 2 billion euros ($2.61B) in 2010 to a loss of 1.1 billion euros ($1.43B) in 2011. In the face of these dismal results, Nokia has aggressively put some initiatives in action and new products into the market which the company hopes will turn around its fortunes. For investors, Nokia is a speculative gamble on the new directions, which could pay off handsomely.
Nokia will pursue two avenues to generate growth of unit and revenue sales. One track will be the introduction of a range of new mobile phone products at the lower end of the price spectrum. These phones will sell primarily in those international markets where the Nokia brand is well known and the right sets of features at the right price points could significantly boost sales. The sales growth from these products is not dependent on participation by U.S. consumers. Examples of the new, innovative products are dual SIM card phones which are popular in India, and inexpensive phones with qwerty keyboards for those markets where the primary use of a phone is to send text messages.
The other stream of revenue growth is a new push into smartphones to compete with the Apple (AAPL) iPhone and the Google (GOOG) Android smartphones from companies such as Samsung (SSNLF.PK) and HTC (HTCXF.PK). To become a player in the smartphone space, in February 2011, Nokia entered into an agreement with Microsoft (MSFT) to produce a line up of smartphones running the Windows 7 Phone operating system. The first models of the Lumia series of Windows smartphones was launched in late October 2011. The Lumia series smartphones are intended for sale in all of Nokia's markets around the world, with high expectations for strong sales results in Europe, China and the U.S. In the States, the LTE-capable Lumia 900 is currently being sold exclusively by AT&T (T). Both Nokia and Microsoft have a lot riding on the Lumia Windows 7 smartphones. The release of Windows 8 for phones, tablets and personal computers later in 2012 could be an additional positive push for the Lumia products.
The Lumia 900 has received overall positive reviews from the tech media. Check out the video review from CNET. The line up of new products from Nokia has gathered a lot of awards from review sites and electronics shows. The new products give Nokia a good chance to turn around the company's fortunes. These new products and Microsoft connection are one reason why Nokia is a better speculative investment pick than the similar competitor, Research in Motion (RIMM). One of RIM's major problems has been an inability to get the company's new smartphone models out to the market on a timely basis. As a result of its problems, the Research in Motion share price is down 75% in the last year. Nokia shares have fared a little better, down 40% over the last 12 months.
If the turnaround potential for Nokia discussed here has convinced you the stock is a good speculative investment, one more item should be considered. If Nokia decides to again pay an annual dividend, the distribution will be announced in early May. For the last three years the dividend has been 0.40 euros or about 52 cents at the current exchange rate. A repeat of the recent dividend rate would be a 10% yield at the current Nokia share price. The dividend declaration and record dates are very close together, putting the ex-dividend date about two days after the dividend announcement. Note the operating income loss experience in 2011 and the 20% decline in balance sheet cash over the course of last year may convince the company directors to reduce or eliminate the dividend this year. In either case, and investor looking to pick up shares may want to wait until after the ex-dividend date. If a distribution is paid, the share price will drop by the dividend amount anyway, so the shares will be that much cheaper. If there is no dividend, the share price will drop on disappointment sales from shareholders expecting a dividend.
The Nokia smartphones will not be a success unless the phones are a hit with consumers in the targeted markets. If you are considering an investment in Nokia, go visit the nearest AT&T store and ask some sales people how the public feels about the Lumia 900. If you get some positive feedback, that might be the final clue that it is time to pull the trigger on an investment in Nokia.
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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