Nokia Lacks Catalyst, Downgraded – Analyst Blog

We downgrade our recommendation for Nokia Corp. (NOK) to Underperform due to lack of any immediate catalyst. The company is facing serious problems in the high-end smartphone segment. Smartphones are expected to become the next-generation choice, taking over the market share from basic mobile handsets. Unfortunately Nokia has failed to introduce any smartphone to compete with BlackBerry, iPhone, or any Android-based handsets.

Nokia could not understand public choice for feature rich PDAs and as a result has been gradually losing market share to Research In Motion (RIMM), Apple Inc. (AAPL), and Google Inc’s (GOOG) Android-based smartphones. Nokia’s faliure in the high-margin lucrative smartphone market will put more pressure on its earnings going forward. Management now expects an operating margin of 11%-13% in its core Devices and Services segment, down from previous expectation of 12%-14%.

Smartphones are generally characterized by very powerful operating system, capable of supporting varieties of services and applications. Nokia’s Symbian OS is a backdated software unable to compete with BlackBerry, iPhone, or Android. This is the primary reason behind the company’s poor performance. Unfortunately, Nokia delayed the introduction of its much hyped upgraded Symbian 3 OS and its partnership with Intel Corp. (INTC) for Linux-based MeeGo OS is still a distant reality.

Nokia Siemens Network, a 50-50 joint venture between Nokia and Siemens AG (SI) is still facing economic headwinds. Severe economic recession forced the telecom carriers to significantly reduce their capital expenditures and network upgrade plans. We believe Nokia Siemens Network is a major sufferer.

Nokia’s top-line has still not recovered from the onslaught of global economic downturn. Although management is trying hard to regain its lost glories, we are yet to be convinced about its real turnaround.