The Nokia Dilemma: Smart Phone Market

Just last week, Nokia came up with their targets to get back what they have lost. However, according to a report yesterday, Nokia has abandoned those hopes of meeting...

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Just last week, Nokia came up with their targets to get back what they have lost. However, according to a report yesterday, Nokia has abandoned those hopes of meeting key targets just, raising questions over whether its new boss, Stephen Elop, a former Microsoft employee can do what he said he was going to do. Its shares went down by 18 percent to its lowest in 13 years; further reducing $5.5 billion off its market value. Google’s Android devices and Apple’s iPhone are going much forward leaving Nokia behind in the smart phone market. At the lower end, which is where Nokia planned to focus this year, Nokia phones are losing to its Asian rivals. They said in the mean time their primary business strategy is to reach the 3.2 billion people who don’t currently own mobile phones, and the other nearly 3 million who can’t or don’t access the Internet on their devices.

The company is switching to the latest Microsoft Corp’s operating system, Windows Phone7 from its own Symbian platform next year to get back in the smart phone market. This might be too late though as it continues to suffer from competition and warned on Tuesday. It expects net sales from its devices and services business in the second quarter to be lower than its previous forecasts, around $8.7 billion. Elop said that Android is gaining strength and Apple is doing very well as normal.

Management issues had also hurt business in China, where Nokia faces challenges from the ZTE Corp. Nokia believes it is no longer appropriate to provide annual targets for 2011 because of this unexpected issue. Although, It would still provide quarterly updates. The new results imply a loss is likely for third quarter. Nokia’s market position is also declining much faster than expected, so bad that they are talking about break even. Nokia shares closed at 4.75 Euros, having briefly fallen as low as 4.716 Euros, their lowest yet in 13 years and compared with a peak around 65 Euros set in 2000. It’s going to get worse before it gets better, they said. The second quarter should be the worst.

Nokia has already announced that they are going to cut 7,000 of its workers soon. In the third and fourth quarter this year there will be new products which of course will include the Windows Phone7. If they can’t get traction with those then it will be a big issue. It is hard to see how Nokia is going to beat their competition next year with a plan made in this year with this year’s technology. It might be too late for them. Although all seems to be bad for Nokia, some traders might use this opportunity to invest in its shares now as an increase later on will result in a good return. They are willing to take the risk and trust the companies’ ability to regain its market value sometime in the future. After all, its sales in more than 150 countries generated global annual revenue of over €42 billion and operating profit of €2 billion as of 2010 and was the 120th largest company in the world in 2009.

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