The credit rating of Nokia is going down, leading to more expensive borrowing for the company that is already in trouble. The first quarter results are impressively bad. Much analysts see only dark clouds on business horizon. And Samsung outran the Finnish giant in the race for the 1st place as mobile phones producer. But is the situation with Nokia so bad?

I think this company is underestimated. It really has some problems, but not crucial problems. It still can be not only saved, but even returned to its leading position.

Being second in the super market of mobile phones is a good position. You have a solid and guaranteed cash-flow. So in short term you have a relatively simple decision for stabilizing - you just need to cut some costs. Nokia has big costs that can be cut. The process of implementing economies has already started. It is may be not fast enough, but it is going.

My prognosis is that after that restructuring Nokia will be back on profit even with highly criticized low-end mobile phones. Some analysts even suggest the company to abandon this business. But I think it must keep it and just optimize in. Cheap low-end phones, with Nokia logo can be a stable fundament of business and a guaranteed source of cash. The problem is not with cheap phones. It is with production costs. And I think in this area Nokia has much unused reserves - especially in using subcontractors and moving the production into cheaper countries.

In fact small and cheap phones are not only phones. They are something more that is missed by some analysts. These small devices are an enormous advertising tool for the Nokia and its trademarks. When you see "Nokia" every day on the phones of much people that are using these products, this is a pure and unconditional benefit for the image and the trademark.

Some years ago IBM decided to cancel the personal computers production and sell its division to Lenovo. The result is that now Lenovo is a global known brand name and IBM is nowhere among mass customers. Before that the logo of IBM on office and home PCs and laptops was an enormous and free advertising benefit. I think this move was a mistake, just like now I think for Nokia will be a mistake to abandon the low-end phones.

Most of markets attention now is focused on smart-phones. Apple iPhones and Android-based devices are the new cash-bonanza. But we forget that smarphones existed before Steve Jobs has made them a mass product. There were smartphones, but they were too expensive and were a part of luxury market. But more important is that such phones existed and the technology and philosophy of producing was not invented by Steve Jobs. In fact, before iPhone, Nokia had some of the best smartphones. So Nokia knows how to make smartphones, and has much experience with them. This is an important corporate resource, that can be an advantage. So although missing some years in favor of Apple and Androids, Nokia is not in so bad situation with smartphones.

And at last let's look at the future. The partnership with Microsoft creates big opportunities for Nokia. I think this combination - "Nokia + Windows Phone" is very strong.

The new Microsoft mobile operating system is a serious challenge for all smartphones. Nokia Lumia series has an advantage that is a little underestimated - the Metro interface.

Microsoft is planning to use its OS power on personal computers to advance in tablets. That is what is Windows 8 intended for. But at the same time it continues the global trend for intimating the tablets and smartphones. In fact some of the smaller tablets already look like smartphones and some bigger smartphones look like tablets.

In this situation smartphones with Metro will benefit from the overall promotion of Windows 8 and Metro. No other smartphone platform will have such an advantage. So it is highly probable the combination of Metro with Nokia logo to become the next cash-bonanza.

But even if this scenario does not happen, we must never forget one last option - Nokia can always bet on... Android. This platform is open one. The super success of Samsung in smartphones is a success of Android. And the brand "Samsung" is not much different as prestige and cognoscibility than the brand "Nokia". So Nokia will always have the chance of cashing its good brand with Android.

So all in all Nokia is really a more tasty bit that it looks now. I think we are close to the best moment to buy shares, before they start going up.

Dobri
April 28th 2012