Nokia Re-Animated

By Kyle Spencer - December 10, 2012 | Tickers: AAPL, CHL, NOK | 21 Comments

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Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited. Henry Frankenstein: Look! It's moving. It's alive. It's alive... It's alive, it's moving, it's alive, it's alive, it's alive, it's alive, IT'S ALIVE! Victor Moritz: Henry - In the name of God! Henry Frankenstein: Oh, in the name of God! Now I know what it feels like to be God! (Frankenstein, 1931) Nokia (NYSE: NOK) is ALIVE. (Who'd-a-thunk-it?) It's alive, it's moving... it's alive, it's alive, IT'S ALIVE! In celebration of Nokia's (re)animation, here's a rundown of the Finnish phone maker's Strengths, Weaknesses, Opportunities and Threats. Strengths: Lumia 920: The Lumia 920 is widely regarded as the most innovative design of 2012. The "evolutionary, not revolutionary" nature of the iPhone 5 left many technophiles looking for a fundamentally new experience. The Lumia brand itself is available in over 18,000 locations within the U.S. Strong European market penetration: The Lumia was sold out in Germany and Italy from the moment it was released. There's also significant brand recognition in Russia and India. Low bar: Nokia doesn't have to reinvent an entire industry. All the company has to do is prove that it can still be a power in the smart phone industry. Nokia is running for its life right now. If the company can stay ahead of the traders piling into short positions against its stock, a virtuous cycle will be created. Short sellers will be hesitant to pile in against the stock again after they've had their fingers burned.

Deal with China Mobile: China is the world's largest market, and the state-owned China Mobile (NYSE: CHL) is the world's largest mobile phone operator, with over 655 million customers. Why is early positioning so important, you ask? Two words: "Brand loyalty." The Asian smart phone market is still in its formative years. Every 1 in 11 mobile subscribers in China currently has a smart phone. That presents a huge opportunity for Nokia, should China Mobile's subscribers exhibit the same fanatical brand loyalty as Nokia's subscribers in India, where Nokia continues to be the most trusted brand. Lumia 620: Priced at just $249 the contract-free Lumia 620 will launch in January 2013 initially in Asian markets, followed closely by Europe and the Middle East. Patent portfolio/recurring payments: The company already earns about $650+ million annually from its patent royalties, including Apple, which has signed a contract worth millions per quarter for patents it uses in the iPhone and iPad. A more aggressive patent litigation strategy could bring in hundreds of millions a year more. BMO Capital Markets puts Nokia's valuation at a punitive $2.5 billion. A more even-handed assessment would be closer to around $6 billion. Bringing work force back into line: Nokia has taken solid steps to slash its bloated work force in 2012 to reflect the fact that it's no longer the most dominant force in the mobile phone industry. Weaknesses Nokia is hemorrhaging ink: Nokia lost 4 billion for the first 9 months of 2012 - nearly a billion of that in the third quarter - versus 0.4 billion lost in the same period of 2011. Marketing: Um, where is it? Here's the most innovative phone of 2012. Why haven't I seen the commercial for it yet? I see Jessica Alba waving one around everywhere, which means you've obviously got the Alba fans, but where's the advertising campaign? Threats Cash burn: Nokia is burning through its cash cushion at a fast rate. Aggressive competition: With the possible obsession of North American shale oil, the mobile space is the most heavily contentious market in the world. Apple (NASDAQ: AAPL) is the hottest tech brand name and the world, and it's a company whose dominance not only depends, but requires technologically disruptive innovation to continue to grow at the pace customers and more importantly investors expect. The odds that Tim Cook will allow himself to be upstaged two years ago are precisely zero. Foolish Takeaway

I recommended elsewhere that Nokia was a steal at $2.60 a share, and so it was. I'm more cautious at the stock's current levels. While the stock may yet have some headroom and even break $4 by Christmas, I'm waiting on more concrete data concerning Lumia 920 sales figures before recommending further accumulation of shares. If the Lumia 920 grabbed 4-5% of the market, I would recommend some profit taking now. If that figure is closer to 8-10%, current levels will be a steal. As always, do your own diligence.

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