The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK ( TheStreet) -- Upon learning early this morning that the debt rating of phone giant Nokia ( NOK) has been cut below investment grade by Fitch to BB+, it further affirms what I have described as the biggest "head-scratcher" on the stock market. The stock continues to be one of a handful to companies that I just can't seem to come to terms with.
Remarkably, on one hand I appreciate the turnaround story that it can yet become by virtue of its partnership with software giant Microsoft ( MSFT). However, on the other hand, the reality is that, in Nokia, we have a market leader that is grossly irrelevant in its own fast-growing industry. It is a wonder that we are still (even today) discussing the survivability of a company that has lost almost 80% of its value over the past five years and continues to burn through cash like nobody's business. Be that as it may, as "feel good" stories go, I remain captivated to see if it can complete this turnaround that it has started. It goes without saying this will be no small accomplishment if smartphone leaders in Apple ( AAPL) and Google ( GOOG) have any say in the matter. It is interesting that Nokia has partnered up with Microsoft -- a company, although successful in its own right, is often punished by analysts for not being Apple. Nokia, (fairly or unfairly) is now being treated the same. But this is where investors often lose track of what exactly presents value. Follow TheStreet on Twitter and become a fan on Facebook. Nokia is never going to be Apple, let's get that out of the way. But that does not imply that it can't be successful. What Wall Street needs to see is that the company is still able to design and produce phones that consumers will buy. From that standpoint, its measure of success does not have to be based on the unrealistic views of how it compares to Apple, but rather on the more realistic assumption that it can secure enough share to leave behind the lesser names such as Research In Motion ( RIMM), HTC and Samsung. Disappointingly, during its first-quarter announcement, not only did Nokia report less-than-stellar results, but its vision for what lies ahead suggests that things might only get worse.
The Grim RealityThe Q1 earnings announcement was a revelation of just how dire the situation is for Nokia. The company announced a loss of 1.34 billion euro which translates to a loss of $1.7 billion in U.S. currency. Compared to the same period of a year ago, it has suffered a decline in smartphone sales of 52%.
More than anything else, this was an area of concern, as I anticipated that its Lumia line of phones based on the Windows platform would have been better received. But in the company's defense, it is still early. CEO Stephen Elop attributed the loss to competition that arrived more than expected. In my opinion, this was a disappointing admission for a CEO to make. He didn't mention any names, but given the fact that Apple and Google are ranked No. 1 and No. 2 respectively in the smartphone market, I think it is safe to say that they were included in the reference. Elop also added the following:
We're navigating through a significant company transition in an industry environment that continues to evolve and shift quickly. Over the last year we have made progress on our new strategy, but we have faced greater-than-expected competitive challenges. We are confident in our strategy and focused on responding urgently in the short term and creating value for our shareholders in the long term.Looking deeper into the numbers, the company logged what appear to be losses across the board. Net sales arrived at $9.65 billion, a number that is down from last year's performance. The company sold 12 million smartphones or 50% less than what it sold in Q1 of 2011. But as bad as these numbers were, the company warned that numbers for the coming quarter will arrive much worse than expected. The company said its devices and services operating margin was going to arrive in negative territory, also suggesting it has limited near-term visibility in that area. So the question is, what are investors to do in this situation beyond the obvious choice of avoiding the stock entirely?