Despite the trajectory of its stock price, many are still bullish for the prospects of Nokia Corporation (NOK, quote). Is Microsoft one of them?
Jyväskylä, Finland pictured from the roof of the Nokia building in Mattilanniemi
Until very recently, Nokia sold more mobile phones than any other company in the world. It is very strong in emerging markets, where much of the future growth will be for mobile phones. Its new smart phones are very competitively priced, which will be a significant advantage in China; Chinese merchants do not subsidize Apple’s iPhones (AAPL, quote), as in the United States.
There are many new phones coming out across a wide range of price points. In addition, Nokia’s Windows Phones, for which it partnered with Microsoft (MSFT, quote) have a promising future.
In all of this, the most important factor for Nokia’s survival is its partnership with Microsoft. Microsoft’s recent introduction of Windows 8 was not auspicious for Nokia as it is incompatible with Nokia’s existing smartphones. Future offerings of smart phones from Nokia are supposedly compatible with Windows 8 though. Nokia needs Microsoft to give reassurance it is committed to the partnership over the long term.
Even more critical could be a capital infusion from Microsoft.
Microsoft certainly has the funds to bail out Nokia. It is desperately needed — Nokia could run out of cash soon. Year to date, Nokia’s share price is down by 52.02%. On a quarterly basis, both sales growth and earnings-per-share growth have plunged dramatically. Next year however, earnings-per-share growth is expected to increase by 103.40%.
Microsoft has obviously looked at buying Nokia, with nothing happening yet. Microsoft is committed to the Windows Phone and life without Nokia could be much, much more difficult. The patent battles alone in court would be very counter-productive and time-consuming. This would give Apple even more of an advantage at a time when that is the last thing needed — the iPhone 5 is due out soon.
In addition, there is always an intrinsic value to an ongoing entity. Life without Nokia could be much more expensive for Microsoft than the costs of bailing it out.