What's next for Nokia?

After selling its mobile business to Microsoft, the Finnish company can expect a prosperous future as it pushes into the telecom services business.

By TheStreet Staff Sep 11, 2013 1:36PM

Telecommunications © Maciej Frolow/Brand X/Getty ImagesBy Richard Saintvilus, TheStreet  

 

People are still stunned after Microsoft (MSFT) made it official that it was acquiring Nokia's (NOK) mobile phone business, along with Nokia's strong patent estate. (Microsoft owns MSN Money.) But the deal, I believe, had been in the works for more than two years.


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Contrary to what investors wish to believe, there's no question that Nokia, which was in a cost-cutting mode for more than a year, was cleaning up its books in anticipation of this deal. By now, everyone should have had a chance to sort through the details. The only question is what happens next?

 

First and foremost, we have to agree that Nokia's phone business, which has struggled to compete against Apple (AAPL) and Samsung (SSNLF), has been a disappointment, if not a complete failure. But that is now Microsoft's problem. Even after this deal, which is pending regulatory approval, is completed, Nokia will still have loose ends to tie up.

 

There's the issue of Nokia getting a new CEO -- the current one, Stephen Elop, will step down as soon as the deal closes. He'll become executive vice president of devices & services at Microsoft. Not surprisingly, rumors are flying that Elop will succeed CEO Steve Ballmer, who recently announced his intention to step down within the next 12 months.


For now, Nokia Chairman Risto Siilasmaa will be the acting chief executive while the company searches for a permanent replacement for Elop.


Won't be kicked around by Apple and Google


So for a company in Nokia's position that has just executed an "about face" in its business model, a lame-duck position in the CEO chair is not the type of overhang on which Wall Street thrives. Not to mention Elop is expected to bring with him four key Nokia executives, which would then leave the management cupboard bare and with little experience.

 

For Nokia investors, though, there's no question that they were the real winners in this deal -- regardless of who or what is left over to drive the company forward. That the company was able to secure $7.2 billion for a mobile phone business that has failed to muster any type of competitive edge against Apple and Google (GOOG) was an impressive win for shareholders. Also, I believe Nokia escaped with perhaps the best deal it could have gotten.

 

What's more, the company is no longer strapped for cash and, contrary to what many bears wish to think, with Nokia's handset business now off the books it now has a more attractive business than many on the Street seem willing to accept.

 

Let's not forget that after spending $2.2 billion to buy the remaining portion of its joint venture with Siemens, (SI), Nokia now owns 100% of a business that has kept it afloat amid the company's struggle in the phone business.

 

What this means is Nokia will be able to devote more focus on growing a business that was already doing well. Given the company's cash infusion, along with what is still a strong brand around the globe, Nokia's push into the telecom services business should be an easy transition. I don't think Nokia's investors will complain that the company is no longer being pushed around by Apple and Samsung.

 

There will be those who say Nokia gave up. But it's not the first time this company has transformed itself. Unlike BlackBerry (BBRY), which can't shed the "dead man walking" moniker by hanging up the phone, Nokia now has a prosperous future ahead. At around $4 per share, it wouldn't surprise me if the stock reached $6 in the next 12 months on the basis of stronger profitability in the network business.

 

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2Comments
Sep 11, 2013 3:58PM
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Since MSFT has a ton of offshore CASH that it can use to make another purchase, they might as well buy BlackBerry. Otherwise that cash is sitting there doing mostly nothing. Paypal has been the king of what they do, maybe MSFT can venture off into that side of things also and grow the Revenue base. That segment of business is expected to grow exponential.
Sep 11, 2013 2:13PM
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Wow ...right out of cramer's book .......the stock is trading today at $5.92 !!!!! NOT around $4......so your "prediction" is nothing of the sort .....

Setting up to point to this in the future and say you recommended it at $4 .......

Shame on you MSN for allowing this game to continue !!
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