Every dog has its day. Steve Jobs learned that a long time ago when his stock fell to single digits from a lot higher price. Then he lost his job at the company he started in his garage. Of course, he was invited back and did the all time best ever turn around. He didn't quite make it to see his stock surpass Exxon Mobil as the largest U.S. company but he got very rich along the way thinking outside the box and being very demanding of excellence from his employees. There was even a rumor today about Apple replacing Alcoa in the Dow 30, no longer Industrials.
These days, speculators run in and out of stocks like they are as irrelevant as peanuts to crush at a baseball game. Spread a rumor, give up before the end of a quarter, go short first and then tell all your friends to do the same. In any case, sooner or later everyone is crowding the same side of a trade like Nokia. So many bad things you can say. Their products are no longer cutting edge. They are running out of money whether or not they are. Microsoft is a rich also ran that hasn't invented anything new and worthwhile in years so why team up with them and their operating system? That Stephen Elop came from Microsoft so of course he will pick their operating system when he decides to throw away Symbian, NOK's solid core OS that people liked but wasn't going to cut it in the new bold world Apple has created. If you think about it, Elop did the only logical thing. He really had no choice.
Not so long ago, once innovative and proud Nokia dislodged once proud and very innovative Motorola from its top perch in the handset market just a few years ago. Both companies have gigantic patent portfolios. They really invented the industry. Jobs just came along and rewrote the script. The last time I wrote that I was chastized for not know these are no longer phones, they are computers. And that they are. The images captured in my HTC device are almost as good as the $600 Canon camera I bought last January(except the camera will shoot camera RAW and the HTC only shoots jpegs). Now you can watch video, send mail, keep track of your calendar, take movies, book reservations, use the GPS device and so forth. Most of these complicated devices do in your hand what the first PC's I bought for Gramercy Capital 27 years ago couldn't do in a $6500 box.
Nokia holds many valuable patents. So does Motorola which is what Google primarily bought when it acquired MOT in recent weeks. Apple is suing Samsung this week accusing it of copying its designs. Notice it is not suing either NOK or MOT (Google now). Pot calling the kettle black from what I have observed about Apple. Jobs had no idea how to build a phone. He sidled up to Motorola's incompetent CEO Ed Zander a few years ago and totally rolled him in a supposed joint venture. When it was over, all the best radio frequency engineers had been made available to Apple. Jobs had all the key Motorola secrets he needed for his phone and MOT had nothing in return. Now MOT is gone. Thank the MOT Board of Directors, including the over touted Indra Nooyi for her role in that catastrophe.
As MOT faltered, NOK took over the top spot with a high thirties market share. Now NOK has faltered and is trying hard to regain some momentum in a rapidly changing market. The cash flow they expected from emerging markets turned into quicksand. APPL better hope its new phone, today leaked that it will be announced on Sept. 12th, is so special that it can keep selling its devices to the Telcos for $600 a piece. The Telcos have all suffered margin declines subsidizing the iPhones to maintain market share against each other . They each operate from the hope that its customers will use more and more bandwidth for which it will be paid. If the new iPhone isn't simply sensational, the prices will fall and so will Apple's margins.
In the meanwhile, Google is overtaking Apple in market share with its Android devices offered by many manufacturers. My HTC is an Android phone. So are the Samsungs which are selling very well. Samsung is fighting back in court that Apple is anti competitive. Apple is accusing Samsung of reverse engineering its devices and simply copying them. As the expression goes, with regard to these countervailing lawsuits, the whole world is watching.
It's hard to know why Nokia is zooming but we are glad that it is. Nokia did sell more phones in the June quarter than some had expected. They slashed prices at the end of the quarter to clear out the Lumia 900's which while on the MSFT Windows 8 OS will not work on the new Mobile Windows platform coming out near the end of the year. There are rumors that Nokia will be taken out. Those come and go. There is the issue of the short squeeze. There was an announcement that a few insiders bought more shares for themselves. And the option plan was reinvigorated to encourage those under the very top tier of employees to stay and work hard.
For the moment, this was the week to own Nokia and not Apple. That 44% gain is hard to ignore. Of course it is the law of small numbers vs. the law of large ones. But it's nice just the same.
Joan E. Lappin CFA Gramercy Capital Mgt. Corp.
In these turbulent times, put our decades of experience to work for your portfolio. Contact us at info@gramercycapital.com. Follow Joan on Twitter@joanlappin.
Mrs. Lappin, Gramercy Capital, and its clients own shares in Nokia at this time.
