Nokia’s future hinges on Microsoft partnership
Question: My Nokia Corp. shares have been plummeting. Do you see any future in this stock or should I get out and take my losses?
Answer: The world’s largest maker of mobile devices has struggled in the new world of smartphones, and its future depends on whether a new partnership can help it expand profitably beyond the market for low-priced phones.
Cheaper Asian rivals have cut into Nokia’s sales at the low end of the phone market, while Apple Inc.’s iPhone and devices based on Google’s Android operating system have surged in popularity. The Finnish company’s share of the overall global mobile phone market fell to 25% in the first quarter, down from 31% a year earlier, according toGartner Inc.
Seeking a reversal of fortune, the company agreed in February to adopt Microsoft Corp.’s Windows Phone software as its primary smartphone operating system, replacing Nokia’s own Symbian software. Customer reaction to the devices produced by that partnership will be watched closely.
That announcement hasn’t kept Nokia shares from plunging or bond rating agencies from downgrading the company’s debt.
The stock has tumbled 40% this year and is down 84% since the end of 2007. Last month, in cutting Nokia’s debt to one notch above “junk” status, with a negative outlook, Fitch Ratings said: “The pace of deterioration has picked up since Nokia decided to switch to an alternative operating system.”
Analyst ratings of the stock consist of two “strong buy” grades, six “buys,” seven “underperforms” and one “sell,” according toThomson Reuters
Despite its challenges, Nokia remains formidable. It has a strong balance sheet, considerable cash flow and substantial research capabilities. In 2010, it earned $2.5 billion on sales of $56.3 billion.
In a settlement last month of a long-running patent dispute, Apple reportedly agreed to pay Nokia hundreds of millions of dollars upfront plus continuing royalties.
Fund manager knows technology
Question: I would like your opinion of Columbia Seligman Communications & Information Fund.
Answer: Paul Wick, this $4.1-billion fund’s lead manager since 1990, really knows technology.
The volatile sector accounted for almost 95% of the portfolio at last report. He pays more attention to stock prices than some tech competitors and avoids companies that aren’t generating cash.
The fund’s Class A shares have gained 34% in the last 12 months, trailing three-quarters of technology funds. Its three-year annualized total return of 10% is above the category average, and its five-year and 10-year annualized returns — 11% and 5.8%, respectively — are in the top one-fourth of the sector.
“This fund is a specialty holding suitable for investors seeking focused tech exposure, but not for a huge portion of a personal portfolio,” said Courtney Goethals Dobrow, mutual fund analyst at Morningstar Inc.
Columbia Seligman’s biggest stock bets recently were on Synopsys, a Silicon Valley provider of design automation technology, which accounted for 6.8% of the portfolio. It was followed by Symantec Corp., Apple Inc. and Microsoft Corp.
The fund imposes a 5.75% sales charge on purchases of fund shares and requires a $2,000 minimum initial investment. It has a 1.36% annual expense ratio.
Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.
