Get Smart With This Undervalued Stock

Before you go, we thought you'd like these...
Before you go close icon

Sixties television superspy Maxwell Smart famously had a shoe phone. While there's no word Nokia (NYS: NOK) has anything that cool in development, management is taking some bold moves, including bringing on a dynamic new leader, that I believe will pay off for the company and for investors.

An industry shaken and stirred
In the 1990s, Finland-based Nokia, and Europe generally, ruled the cellular world. Europe was one of the world's largest cellphone markets, and since its major telecoms had settled on a single network standard, all Nokia had to do was sit back and crank out handsets en masse.

At the time, software was relatively primitive and hardware was the name of the game. For a company that grew up making rubber boots and paper, there was continuity in skills that worked to their advantage. The introduction of the iPhone in 2007 changed all that. Now software was what counted, something neither Nokia nor Europe did particularly well.

Symbian is not enough
In its attempt to catch up, Nokia took full ownership of Symbian, a smartphone operating system that had been developed by a consortium of companies that included Ericsson (NAS: ERIC) , Samsung, and Nokia. Before the coming of Apple (NAS: AAPL) , Symbian actually led the smartphone market by share.

But once the iPhone arrived, it was game over for Symbian. The iPhone was just in a different league technologically. Another nail in Symbian's coffin, if it really needed one, was the fact that application developers didn't support the platform the way they did Apple's. In the end, consumers overwhelmingly went with Apple or Google's (NAS: GOOG) Android operating system for their smartphones.

The company that came in from the cold
Nokia's new boss, Stephen Elop, arrived in late 2010 and brought with him sweeping organizational, strategic, and motivational changes (in a February memo to employees, he compared the company's situation to that of being on "a burning oil platform").

Elop himself represents sweeping change, being the first non-Finn to run the organization. And with a former Microsoft (NAS: MSFT) senior executive now at the helm, Nokia may be hoping some of that New World software magic will rub off.

More change for Nokia came in the form of Elop's decision to ditch Symbian and use Microsoft's new Windows Phone 7 operating system. Microsoft's products don't have Apple's or Google's sex appeal, but Microsoft is still the 800-pound gorilla on the software block. Microsoft could be the software yin to Nokia's manufacturing yang.

From Finland with love
Yes, revenue is down for the third year in a row. Yes, share price has fallen nearly 40% percent in the past year. But Nokia is still the world's biggest handset maker by volume. It has more than $2.5 billion in cash reserves and no long-term debt. And sales in the world's fastest-growing market -- China -- were up 35% in 2010 from the year before

It also helps that Microsoft is reportedly paying Nokia more than $1 billion as part of the deal to use its smartphone operating system. In the end, Microsoft needs Nokia as much as Nokia needs Microsoft.

Don't count these Finns out yet, Fools. There are plenty of people left in the world to sell smartphones to, and I think there's plenty of room left in the market for a third major player. And if first reviews are any indication, Microsoft's new operating system will positively distinguish itself from both Apple's and Google's.

Who knows, maybe shoe phones will be the next big thing and Nokia will lead the way. I know I'll get one.

Click here to add Nokia to My Watchlist, a FREE service of The Motley Fool that's an easy way to keep up with the stocks on your radar.

At the time this article was published Fool contributor John Grgurich would love to hang out with some reindeer in Finland, but he owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of Microsoft and Google. Motley Fool newsletter services have recommended buying shares of Microsoft and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners