Good Luck, Nokia

November 9th, 2007: At the middle of this day's trading just a few years ago, Finland-based Nokia Corp.'s (NYSE:NOK) share price reached an all-time high of $42.22, settling to close at a solid $37.94. Since then, the story of once-market-leading Nokia has been one of tragedy and failure. Eerily, just four days prior to NOK's historical peak--on November 5, 2007--Google's (NYSE:GOOG) Android distribution was first released. Few analysts could have predicted the impact that Google's open-source mobile OS would have on the global smartphone market, let alone NOK specifically.

In terms of valuation, NOK currently trades at approximately 10x earnings (TTM), while the industry maintains an average P/E of 21.73. However, NOK's P/E high of the past 5 years is 37.49, compared to the industry's multiple of 56.71x. Clearly, the comps don't tell the whole story: as of market close today, shares traded at a measly $6.69, on heavy volume. The stock experienced a 14% decline on Tuesday, and another 5% decline today. Its outlook is cloudy at best. Analysts agree, as many have downgraded the stock from neutral to sell or underweight since February 2011.

In an article by Christopher Lawton and Amir Efrati in today's Wall Street Journal, the authors recount the problems at Nokia as a result of Android's tremendous progress and popularity. One of the most telling statistics involves NOK's market capitalization. As of today's after hours trading, Nokia has 3.80B shares outstanding, and maintains a share price of $6.67, equating to a total market cap of $25.346 billion. Shockingly, as noted in the WSJ article, many telecommunications analysts predict that Apple's (NASDAQ:APPL) net profits in 2011 alone may exceed this number. With the incredibly popular iPhone 4 (and with the iPhone 5 slotted for a September 2011 release), competitors should fear Apple's growing dominance in the smartphone market. Its other products aren't doing too poorly, either.

Equally as shocking is the fact that Nokia still possesses the title of the world's largest handset maker by volume. This is mainly due to Symbian's market dominance in Europe, which makes up a large percentage of the global market. However, the percentage of smartphones running Nokia's OS has declined from 40 to 21 percent YTD, while Android devices "ran on 34% of devices, up from 8% a year ago." This is an incredible statistic for the folks at Google, and a dire harbinger for NOK investors.

Simply put, Nokia's chief executive Stephen Elop will not be able to decrease the gap between his company and its chief OS competitors, Google and Apple. Furthermore, handset makers HTC Corp. (as well as Sony-Ericsson and Motorola Mobility) have produced elegant, innovative and state-of-the-art handsets, the majority of which boast Google's powerful and streamlined OS. Nokia quite frankly isn't even on the map of smartphone players in the United States (in terms of handset quality and capability). The combination of sheer creativity and unparalleled technological development at both Google and Apple (a combination ingrained in the companies' respective cultures) will ultimately prove an insurmountable challenge for Elop and Nokia.

One final note: NOK's partnership with Microsoft and WP7 is a step in the right direction. But is it enough to turnaround such a troubled company? If you can't beat them, join them. For Nokia, though, the "them" seems to be Google and Android, not Microsoft. Market research analysts predict that WP7's market share will reach only third place at 16% by 2016. Thus, the Seattle-Finland relationship will not suffice.