Comment
0
Tweet
0
Print
RSS Feeds

Don't Count Nokia Out Yet

Thursday - 5/23/2013, 5:01pm  ET

It seems that lately Nokia's  competitors have been getting all the attention. The press has been focused on BlackBerry's 10 line of smartphones and the company's decision to expand its BlackBerry Messenger (BBM) to iOS and Android. In terms of Apple, investors have been focused on the company's mountain of cash and its overall valuation.

Nokia, meanwhile, has been quietly making some very smart moves, and I think investors need to start paying closer attention to how cheap Nokia has become.

Nokia's history

Many investors forget that at one time Nokia was the top-selling mobile phone manufacturer in the world. The company failed to adapt to changing conditions and got toppled by Apple's iPhone and Google's Android. Over the past two years, the company has made a complete shift and adopted Microsoft's Windows operating system and sold those smartphones under the Lumia brand. Nokia is now locked in a battle with BlackBerry for the number-three spot in the smartphone wars.

Emerging markets

Nokia's strong suit is in emerging markets. Its phones are known for their long battery life where access to phone chargers can be intermittent. Nokia's phones are known for being practical and quite honestly, just working as a phone is supposed to.

Nokia has been operating and selling phones in China for more than 20 years. It has an agreement to sell its Lumia phones with the world's largest carrier, China Mobile. Nokia's sales and distribution forces in China remain strong. The one problem Nokia had to encounter was not being able to deliver all the phones China Mobile ordered. Sales in China were down in the first quarter because of this backlog, but look for this to be rectified in the coming quarters. Nokia's Lumia 920 has great potential if Nokia can get its marketing and overall China strategy right.

Nokia just launched a new mid-range line of phones under the Asha brand. These phones sell for about $99 and offer a touchscreen with Internet capabilities. The Asha phone is geared towards the market in India and Africa, where incomes are lower but the demand for smartphone features is rapidly growing. India is the world's second-largest cellular market by sales, and Nokia has 26% of the market. For Nokia, India is the second-most important market after China.

Recent market share gains

The latest Q1 mobile-phone shipments showed gains for Microsoft and Nokia with the Windows OS officially overtaking BlackBerry's OS for the third spot. Nokia represents 79% of all phones using the Windows OS. The key for Nokia and Microsoft is being able to take market share away from Apple and Android, which account for 92.3% of the market combined.

Nokia's new 925

Nokia just released its flagship Lumia phone the 925. This phone will be available exclusively through T-Mobile in the U.S. The new phone makes several improvements over the prior 920. The phone has a better camera and is sleek and stylish with an aluminum frame.

Undervalued stock

What really helps Nokia shareholders breathe a sigh of relief is that the company is extremely undervalued. Nokia has an extremely valuable patent portfolio. Of the $37 billion in revenue last year, roughly $600 million came from patent royalties. At 10 times revenue, the patent portfolio could be worth as much as $6 billion.

The current stock price doesn't reflect the excellent balance sheet position with a net $6.2 billion more cash than debt. The market also doesn't take into account Nokia's stake in Nokia Siemens. When you add all of this up, the value of its parts is greater than its current market cap of just over $13 billion.

Foolish assessment

The smartphone market is an extremely competitive marketplace. Nokia is battling with the likes of Apple, BlackBerry, and Google's Android smartphones. Each company is looking to capture an ever-changing market. Nokia once dominated the mobile-phone market and today it is locked in a battle as the company missed the changing market.

In comparing Nokia with its competitors we see:

 

Nokia

BlackBerry

Apple

Google

Market Cap

$13.8B

$7.5B

$406.7B

$301.6B

Revenue

$37.1B

$11.1B

$169.1B

$53.5B

EBITDA

$1.4B

$1.2B

$57.4B

$16.8B

Net Income

-$3.2B

-$628.00M

$39.7B

$11.2B

Gross Margin

0.3

0.3

0.4

0.6

Price/Sales

0.4

0.7

2.4

5.6

Apple and Google are more fully valued than Nokia or BlackBerry. BlackBerry and Nokia are both turnaround situations. Nokia is continuing to make the right moves for the long-run and shareholders, unfortunately, must remain patient. At a current price of under $4 per share, the upside looks greater than the downside for Nokia shares.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.

This article was originally published as Don't Count Nokia Out Yeton Fool.com

Copyright © 2009 The Motley Fool, LLC. All rights reserved.