Tick Tock, Nokia: Time May Be Running Out for Phone Maker

NokiaShares of Nokia (NOK) hit an all-time low of $3.90 earlier this week. The same company that was the pride of Finland a decade ago -- leading the world in mobile handset sales -- appears to be as finished as it is Finnish.

As consumers move from yesterday's feature phones to the smartphones of tomorrow, Nokia is championing platforms that wireless customers seem to have little interest in embracing.

Last week's release of Lumia 900 through AT&T (T) should've been something special. As the flagship smartphone for Microsoft's (MSFT) Windows Phone mobile operating system, it was supposed to be the device that put both Microsoft and Nokia on the map.

The phone still has a chance to be a hit, despite a software glitch in some of its early production units that led to the company offering a $100 credit on their AT&T wireless bills to all buyers of the Lumia 900 through April 21 -- long after the glitch was fixed.

Knocking Nokia

Two mobile operating systems now hold the lion's share of the smartphone market. The iPhone, with iOS, has the high end of the market cornered with its stylish handsets and a rich ecosystem of apps. Google's (GOOG) Android is the global leader. The first Android devices didn't hit the market until Research In Motion's (RIMM) BlackBerry and Apple's (AAPL) iPhone were disrupting Nokia's feature phone business, but it has passed the competition as an open source platform.

In other words, Google is offering Android as a free operating system to any mobile device maker. RIM and Apple have entirely different self-serving strategies, leaving Android as the platform of choice for other handset makers.

Before the Microsoft deal, Nokia was struggling in support of a fledgling non-Android smartphone operating system -- MeeGo, a Linux-based open-source platform. Nokia was the only major player backing it; now, it's unsupported.

Nokia also had Symbian, which commanded a sliver of the market. Both paths were dead ends, and the company had to decide if it wanted to take billions of dollars from Microsoft to go all in on Windows Phone, or join everybody else in the Android sandlot.

Instead of competing with Samsung, HTC, and Motorola in the perpetual one-upsmanship contest that's taking place with Android devices, Nokia hitched its wagon to the one company that's as hungry as itself to matter again.

So far, it isn't working.

In a Bad Moody's

Moody's downgraded Nokia's debt grade to near-junk status earlier this week. The move came after Nokia's warning late last week conceding to investors that its business isn't doing so well.

The fallen giant is somehow generating negative operating margins on its flagship mobile phones business.

The Moody's credit rating hit had to come as a surprise. Nokia has a cash-rich balance sheet, and there was also the matter of all of the money that Mr. Softy had promised. Is Nokia's debt really a bad sneeze away from being junk?

As this all plays out, Nokia's market share continues to slip. Not everyone can afford a high-end smartphone, but Nokia's market for low-end feature phones continues to fade.

Last Chance for Nokia

It's not too late for Nokia, but all of the time that it spends now backing Windows Phone will be lost forever if things don't pan out. It's not as if Nokia can hop on over to Android in a couple of years when the allure of the Nokia brand will be a cobweb-covered memory.

After years of profitability, analysts see Nokia posting a small deficit on an 11% decline in revenue this year. Those same pros see the company bouncing back into the black next year, but Wall Street's long-term views of Nokia have been too generous in the past.

If Nokia can't get the Lumia 900 to be a hit, it will have followed Microsoft on a road to nowhere.

Every passing quarter finds both Apple and Android winning over tens of millions of smartphone owners apiece. Microsoft and Nokia may be too late, and that's an uglier problem than RIM is facing for being too early.

Nokia has the money. It has the pedigree. Unfortunately, it's missing the most important part -- the plan.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Microsoft. Motley Fool newsletter services have also recommended creating bull call spread positions in Microsoft and Apple.
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