Sure, the industry is set to grow by leaps that would impress Superman. However, I'm not sure this will translate into Nokia besting a speeding bullet in a foot race. It makes most of its money selling handsets, a market that is sure to see huge increases in both demand and supply in the near future. To meet this demand, manufacturers in Korea, Taiwan, and China are already looking at ways to export more phones. As manufacturers in these countries improve the quality and function of their phones and make them cheaper, Nokia will probably watch its gross margins fall. Since gross margins are already in the 38% neighborhood, this could have a painful impact on overall profit levels. Growth for the industry is a certainty, but that growth translating into high profits for Nokia is less certain.
Invoking the Motorola's gaff from a few years ago is rather telling. From my point of view, Motorola, an analog wireless communication powerhouse, rested on its laurels and lost out when the upstart next generation (digital) arrived. The result was Motorola losing its dominant position to Nokia. Now, we are on the cusp of yet another new generation, 3G. If Nokia doesn't come to terms with Qualcomm, its future in the next generation will be murky at best, and the company could find itself in Motorola's shoes in a few years.
The point to take home is not that Nokia is a bad company. It has had a great run that has put the stock price up near 52-week highs. The question is, will the company be able to deliver the same returns it gave investors in the past? At this point, there are some risks that the company needs to address, chief among them an agreement that will clear the way for 3G technologies. With a critical part of its future up in the air, investors need to get a much clearer picture before deciding to invest in Nokia.
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