Zacks Equity Research, On Monday June 28, 2010, 9:18 am EDT
Nokia Corp. , the largest mobile phone manufacturer of the world, is undecided on its operating system software. Nokia’s problem in the high-end smartphone market continues as it seems that management is yet to choose an operating system. Smartphones are generally characterized by a very powerful operating system capable of supporting a variety of services and applications.
In August 2009, Nokia announced that it will use the Linux-based Maemo 5 open-source software as the operating system for its future high-end mobile devices. So far Nokia has launched only one smartphone N900 based on Maemo 5 and has now declared that all its future smartphones will use the Linux-based MeeGo operating system (OS).
MeeGo has been jointly developed by Nokia and Intel Inc. . This OS is basically a combination of Nokia’s Meamo 5 and Intel’s Moblin. Nokia is yet to launch any smartphone based on MeeGo. In the meantime, Nokia has launched its N8 smartphone based on the upgraded Symbian 3 operating system. Nokia recently announced that this upgraded Symbian 3 software will be used for low-end phones mainly targeting the retail consumer segment in the emerging markets.
Nokia’s existing Symbian OS is relatively old software unable to compete with the iPhone of Apple Inc. , BlackBerry devices of Research In Motion Ltd. (NasdaqGS: RIMM - News), and several Android-based smartphones, especially flagship DROID phone of Motorola Inc. . The Android operating system is developed by Google Inc. which is gaining huge market traction.
Lack of a firm decision by management is only delaying Nokia’s smartphone turnaround strategy since third party application developers are reluctant to develop application for Nokia smartphones. This is the primary reason that Nokia is performing so poorly.
At the time when Apple, Research In Motion, and Motorola are making their software user interface more easily accessible to outside application developers, enriching their respective application stores, Nokia remains undecided on the use of software and the device that will use the same.
Smartphones are expected to become the next-generation choice, taking over the market share from basic mobile handsets. Feature rich software and services are the main characteristics of any smartphone which Nokia seriously lacks. We believe Nokia’s inability in the high-margin lucrative smartphone market will put more pressure on its earnings going forward.
We maintain our Underperform recommendation for Nokia. It is currently a Zacks Rank #5 (Strong Sell) stock.