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Nokia Starting to Appear a Little More Bullish in 2014

Muhammad Bazil

Muhammad Bazil

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It’s been a bumpy ride for the struggling mobile communications company. Nokia (NOK)'s stock value has fluctuated between $3.02 and $8.20 over the past year. As of the market’s close on Feb. 28, the price is currently resting at $7.58, near its 52 week high. The drop in price at the end of the Friday was followed by a spike in trade volume as nearly 6 million shares were traded in the final hours. This is the highest amount of activity the stock has seen during the week.

The Nokia X

One possible reason for this increased interest in Nokia could have to do with the recent unveiling of the Nokia X, a new phone designed to operate on a modified version of the open source Android operating system. The new product line, which will actually include three new devices at different price tiers, is targeted at emerging markets. In countries like India, Russia and Indonesia, low-cost smartphones are the best sellers on the market.

One of the biggest questions on investors’ minds is, why? If this news came out one year ago, analysts would be quick to applaud the company for the move which is both cost-effective and likely to see success in the markets in which it will be launched. However, now, with the sale of Nokia’s handheld division to Microsoft (MSFT) about to be finalized, what is Nokia really saying with the launch of this new line of Android phones?

Some speculate that it may be a warning to Microsoft’s new CEO who may or may not be reconsidering the purchase of Nokia’s fledgling handheld division. An Android phone would do little in the service of Microsoft, and Nokia is intent on selling as it would be a huge weight lifted from the company’s shoulders. Whatever the outcome of this situation, this move by Nokia has made it clear that the deal is much more fragile than previously thought.

The Partnership with Juniper

At the end of February, it was announced that Nokia was considering a purchase of Juniper Networks (JNPR). However, an all-out purchase of the company, currently valued at about $14 billion, would put a strain on Nokia’s already tight budget. However, with the expected sale of its handset division, the company is under close watch to see how it will make use of the proceeds.

The intention behind the potential deal would be to strengthen the company’s Siemens Networks division. The chief executive of Nokia’s Siemens Networks division stated at the Mobile World Congress in Barcelona that any deal arranged with Juniper would be part of the company’s focus on expanding and improving its networks portfolio.

The strategy is meant to improve Nokia’s sales performance within the U.S. In 2012, the U.S. market accounted for less than 10% of its revenues. Juniper, on the other hand, attributed more than 50% of its total earnings to revenues from the Americas. Its biggest customers, Verizon (VZ) and AT&T (T), are leaders in the market.

While a full takeover seems impractical at this stage, a stronger partnership between the two companies would likely help to alleviate some of the pressure from competition for Nokia, particularly in the North American market.

Nokia and Microsoft: To Be, or Not to Be?

Despite tensions surrounding the nearly complete sale, both companies appear to be continuing as planned. Google (GOOG) and Samsung have appealed to the Chinese government to prevent either company from raising patent fees after the deal is carried out, placing yet another legal obstacle in Nokia and Microsoft’s path. However, this is not insurmountable and the recent announcement that Stephen Elop, former head of Nokia, will be appointed to an executive position at Microsoft (in charge of running the handset division the software company is purchasing) is promising news.

Investors should not be concerned about the deal potentially falling apart, but it may not turn out to be as smooth a transaction — nor as potentially profitable — as previously anticipated. While Nokia stands to suffer more than Microsoft in the event that something goes wrong with the sale, the new line of Android phones and the partnership with Juniper could be a saving grace to keep the company on its feet.

About the author:

Muhammad Bazil
Muhammad Bazil is a financial journalist and editor for a variety of websites, public policy organizations, and book publishers. He has written hundreds of published articles and blog posts on topics including budgeting, credit management, real estate and investing. His articles have been featured on the homepage of Yahoo!, MSN and numerous local news websites.

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