Nokia Corporation (NOK, Financial) has made several significant changes to its business in order to initiate a turnaround for its financial and market performance. Although the company’s plans for remodeling its business have yielded some positive results, the company continues to struggle in the stock market as it is met with one after another challenges. The latest challenge came from Microsoft’s (MSFT, Financial) announcement that the company will drop Nokia’s name from its upcoming Lumia smartphone resulting in a significantly negative impact on Nokia’s brand name. This move by Microsoft conveys how Nokia’s brand has impaired over the years and it is no longer an attractive name in the smartphone market.
As part of its business remodeling, Nokia sold its handset division to Microsoft and this move was appreciated by industry experts as Nokia’s ailing handset business had a very negative influence on its consolidated earnings from all the business units. By disposing of its handset business, Nokia was able to focus on its more profitable businesses such as "network equipment." This strategy paid off as Nokia was able to present positive financial results exhibiting growth in many of its business units. Nokia disclosed 13% growth in revenue in the third quarter for which results were announced in October 2014. The business units that had commendable growth were: networks segment, HERE segment and technologies segment. The company is strengthening its global expansion by investing in 2G, 3G and 4G technologies around the world. In its current quarter, Nokia entered 10 deals in India across 2G, 3G and 4G platforms, which will result in a significant increase in year-over-year revenue growth for this business unit. In addition to that, for its HERE segment, Nokia recently released an update for its HERE map on Android adding compatibility for Android Lollipop. The revenue for Nokia’s HERE segment grew 12% year over year, to $313 million in the recently disclosed financial information. Although Nokia is trying to make its mark in the maps business with its HERE segment, the company faces very strong competition from similar services provided by Google (GOOG, Financial) and Apple (AAPL, Financial). According to some experts, Nokia’s HERE maps service is overvalued, and it will receive a major impairment which may drive down the company’s stock price in the future.
As Nokia is focusing more on its network equipment and technologies businesses, the company is facing the major players in the market for those businesses which are: Alcatel Lucent (ALU, Financial) and Ericsson (ERIC, Financial). With innovative market strategies and international business expansion, Nokia may be able to outdo its competitors in the subsequent periods. Alcatel Lucent disclosed a profit margin of 2.18% for the quarter ended in September 2014 while Ericsson reported a net profit margin of 3.56% for the quarter ended in March 2014.
With regard to Nokia’s market performance, the company’s stock has remained volatile throughout the past one year. While the price jumped by 6% after the disclosure of unexpectedly positive financial results in October, it has been exhibiting an unstable trend since then. At the time of this edition, Nokia’s stock was being traded within the range of $7.73-$7.88 while the 52w range of the stock price is $6.64-$8.73. Figure 1 represents the trend of market performance of Nokia for the past one year.
Figure 1: Nokia’s market performance
(Source: Google Finance)
Considering the financial and market performance of Nokia, a conclusive opinion cannot be developed. Where on one hand, the financial performance of the company is stabilizing, on the other hand, factors like strong competition in maps service market and impairment of Nokia’s brand name in smartphone industry are translating into negative forces for company’s market performance. Although Nokia may continue its improvement in financial performance in subsequent financial periods due to global expansion of networks equipment and technologies business segments, the volatility of its market performance cannot be ignored. In light of this analysis, Nokia’s stock can be given a "hold" rating because the trend in stock price may continue to be unpredictable.
