Nokia Corporation (ADR) (NOK) Could Be in Big Trouble: Microsoft Corporation (MSFT)

Back-stabbing partner
In a recent filing with the SEC, Nokia Corporation (ADR) (NYSE:NOK) admitted what many investors have already feared. Should Microsoft Corporation (NASDAQ:MSFT) at any point decide that Nokia is not living up to its expectations, it could begin releasing smartphones on its own, which could be “detrimental” to Nokia’s business model. This is not necessarily new news, but it marks the first time Nokia has publicly admitted it’s at the mercy of Microsoft. The worst-case scenario for Nokia Corporation (ADR) (NYSE:NOK) would be that Microsoft learns all it can from Nokia and then dumps it. What next, Android? Something tells me that wouldn’t go over well with investors.

The nail in the coffin
Not only does Nokia Corporation (ADR) (NYSE:NOK) have to deal with the threat of the feature phone dying and Mr. Softy dumping it, Samsung is about to release a $100 unsubsidized smartphone for the Indian market. Folks, the race to the bottom is officially here, and although Nokia’s current smartphone portfolio is priced aggressively, increased competition from bigger players poses a serious threat to Nokia’s future profit margins. This game of chicken will put all OEMs fighting for the lowest common smartphone denominator at risk of razor-thin profit margins. In an all-out price war, Android has the advantage against Windows Phone 8 since it gives away its license for free. Overall, Nokia seems to have the most to lose since it really needs to find an effective way to compensate for the decline of its feature phone business.

When the music stops
As investors, it’s always a valuable exercise to consider the major risks that a company faces while pursuing its growth strategy. In the context of Nokia, there are many threats that remain largely unaddressed, which should cause concern for investors even at this depressed level. I’m left with the feeling that Nokia Corporation (ADR) (NYSE:NOK) is currently under attack from all angles. For the sake of its future, I seriously hope the company truly understands the magnitude of what it’s up against.

The article Nokia Could Be in Big Trouble originally appeared on Fool.com.

Fool contributor Steve Heller owns shares of Apple and Google. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.