Shares of Nokia (NOK) tumbled 5% this morning after analyst Andy Perkins of France’s Societe Generale recommended that investors in the Finnish company get out of the stock at this time. Perkins thinks that falling handset sales, operating losses and restructuring costs will eat into the Finnish company’s $12 billion cash pile.
At $3.00 per share, Nokia’s current market value is less than the value of the cash on its balance sheet. So apparently many investors do think a dollar in their own hands is safer than a dollar in Nokia’s hands. Fitch Ratings and Moody’s Investors Services have both downgraded the company’s debt recently, with Fitch actually assigning “junk” status to the bonds.
Until recently Nokia was the world’s leading vendor of mobile phones, but the company has been slow to transition from feature phones to smartphones. In February of last year, CEO and Microsoft veteran Stephen Elop announced that Nokia would partner with Microsoft for future smart devices. The company’s market share and stock price have both plummeted since then, and now that the partnership’s Windows-based Lumia phones are on the market, investors are punishing Nokia for not selling more of them during the first few months. Nokia sold two million Lumia phones during the first quarter, while Apple sold 35 million iPhones, and Samsung (which does not disclose units sold) is widely believed to have sold even more.
But Nokia continues to sell one out of every five mobile phones purchased worldwide. According to the latest research from IDC, market share is indeed slipping, but Nokia is still selling more phones worldwide than any company but Samsung, and selling more than twice as many as Apple. Analysts note that as the worldwide PC market shifts to tablets, Nokia could be well positioned because of its strong global distribution channels.
Nokia also earns more than half a billion each year from patent royalties, and analysts say there is definitely room for growth in this area. Nokia appears to be gearing up to milk its patent portfolio more aggressively. Last week the company sued HTC, Research-in-Motion, and ViewSonic for patent infringement in the US and Germany.
Bottom line: Nokia has $12 billion in cash, a solid patent portfolio, and a vast global feature phone business. At $3.00 a share (which gives investors an 8% dividend yield), there should be investors willing to bet that if Elop can’t turn it around, his former employer will.
(Full disclosure: The author owns NOK stock.)
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