Am I Making a Big Mistake?
As a Fool, it's my sworn duty to take contrarian positions whenever the situation merits. Just such a situation arose recently involving cellphone giant Nokia (NYS: NOK) , and I'm ready to push what some people might consider a questionable call even further.
Down but not out
In a previous column, I took the decidedly unpopular position that Nokia, far from being out of the smartphone game, is actually poised to make a comeback. I made this call based on the following factors:
- The company recently brought on bold, smart leadership in the form of CEO Stephen Elop.
- The company dumped its faltering Symbian smartphone platform in favor of Microsoft's (NAS: MSFT) new, and so far well-reviewed, Windows Phone 7 operating system.
- The company has a strong enough balance sheet and enough overall market share to plausibly effect a smartphone market turnaround. (Nokia is still the world's largest maker of mobile phones by volume.)
Now, the company has announced it is cutting jobs and closing a factory, bolstering my faith in its future even more.
Getting down to fighting weight
According to the Financial Times, Nokia will cut 3,500 jobs and close a manufacturing plant in Romania. This is part of a plan announced by the company in April to cut its operating expenses by $1.3 billion over the next three years. The company said further job cuts and manufacturing realignment might be coming next year and that any details would be announced in the first quarter of 2012.
"We must take painful, yet necessary, steps to align our workforce and operations with our path forward," Elop told the Financial Times. "With these changes, we will emerge as a more dynamic, nimble, and efficient challenger."
Difficult but necessary decisions
Coming as I do from a working-class background -- and having watched my father and family reel from the effects of job losses -- it's difficult for me to ever applaud job cuts and factory closings. But sometimes, for a business to survive and to thrive, it's a necessity.
This is one of those times. Nokia let itself fall dangerously behind Apple (NAS: AAPL) and Google (NAS: GOOG) in the smartphone game, and now it's scrambling to get back in. But Nokia knows how bad of a spot it's in and is taking the difficult steps necessary to try to get itself out.
I think Nokia is on the right path to turn things around. Naturally, success isn't a sure thing, but the company has a much better shot at it than the investing community is giving it credit for. Trading at $5.30 a share with a P/E of 12, Nokia is a stock worth watching, even if you do think I'm dead wrong.
My Watchlist is a FREE service of The Motley Fool that makes it easy keep up with the stocks on your investing radar, and to keep track of just how wrong, or right, I am. To add Nokia to My Watchlist, click here.
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, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Google, Microsoft, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.