Nokia: Burning Down the House
Nokia (NOK) CEO Stephen Elop warned that his company was a "burning platform" in the North Sea. Those investors who continued to stay long Nokia despite hearing that siren learned the hard way "not to play with matches" - the company noticed a revenue and earnings shortfall, sending the stock down.
Back in February, I told those who held the stock to jump off the burning oil platform and swim over to Apple:
There were tell-tale signs warning that Nokia was an inferno in-waiting. Nokia has been sounding a fire alarm for years. The company's profits on each mobile phone it sells has dwindled while its overall sales volume stalled, a pattern that has been inexorable and dramatic. Contrast that to Apple, a company that stole Nokia's proverbial lunch money. Apple has accomplished everything Nokia hasn't been able to do: accelerating phone sales while increasing its operating income. The iPhone has helped Apple make more money from each device it sells. Certainly, if Nokia is standing on a burning platform, isn't Apple sitting on a oil well gusher?
Nokia cut numbers because it is selling products with lower average selling prices and gross margins due to aggressive competitors. Nokia's pre-announcement is reminiscent of Research In Motion's (RIMM) warning on April 28 of weaker earnings; it too echoed the same themes - lower ASPs, lower margins - and that also sent RIMM down an identical 14%. Apple clearly has a hand in these shortfalls: Jobs & Co. have been forcefully taking share. I've been using operating income per device in order to forecast these moves successfully. Apple's operating income per device has been flying higher while Research In Motion and Nokia's have been heading lower. Expect continued bad news for Research in Motion and Nokia. Unfortunately for both them, their platforms are still burning with no fire extinguisher in sight.