By Scott Ronalds

Nokia is an interesting story. To many North Americans, the company is viewed as a has-been. While its cell phones may have been all the rage a decade ago, its star has fallen considerably as Apple and RIM have taken over as the market leaders thanks to their innovative, and very cool, smart phones. In fact, Nokia’s market share of handset sales in the U.S. has fallen to a paltry 7%.

What’s more, the company also recently ventured into the highly-competitive, low margin laptop market with the launch of its first netbook, which will sell for about $800 US. As well, Nokia launched a music and gaming platform earlier in the summer called “Ovi” to try to compete with the grand-daddy of the business (iTunes). To some observers and analysts, Nokia has lost its focus and shine; it’s yesterday’s story. The stock, while reasonably valued at around 13-14 times earnings, has little appeal.

In Europe, Asia and much of the rest of the world, however, it’s a different story. The Nokia brand has much greater appeal and market share. While it may come as a surprise to some, the company is the #1 cell-phone maker in the world, with a market share of nearly 40% and over 1 billion users. In fact, Nokia sells more cell phones worldwide than its next three competitors combined.

In the developing world, Nokia is king. As an article in the September issue of Fast Company Magazine points out (to which the above numbers are attributed), the company’s success in areas such as Asia and Africa is due to the fact that “Nokia has worked hard to develop a deep understanding of all the cultures in which it operates. It runs 10 research labs worldwide, each based on an Open Innovation philosophy and affiliated with a local university.”

The article goes on to illustrate how Nokia’s researchers “immerse themselves in locales that cover the widest spectrum of the human condition...so while Apple, RIM and Palm offer singular products that target an elite, niche market, Nokia builds devices to satisfy every budget and appetite for information, making it indispensable all over Africa and Asia.” While on the topic, an interesting book titled Brand New World (which I read earlier in the summer) highlights some of Nokia’s innovative marketing initiatives in India. For those interested in product branding in the BRIC nations (Brazil, Russia, India and China), it’s a worthy read.

But I digress. The point here is that Nokia is not a dying brand, at least outside of North America. The Fast Company article expands on the company’s initiatives and projects in the entertainment media industry (through the Ovi platform mentioned above) and while the author may paint a rosy picture, it’s hard to deny the attractiveness of the opportunities that exist for a company with a billion users and a strong global brand.

As an investment opportunity, the story gets even more interesting. Nokia’s stock isn’t an “automatic” holding in every global equity portfolio (like it was a decade ago), as say Royal Bank is for every Canadian equity fund. Analysts can crunch the company’s numbers every which way and fuss over its valuation incessantly. But it’s the bigger picture that matters more. Will the company’s research efforts and initiatives in the developing world turn into a multi billion-dollar revenue stream? Can it strengthen its position in North America and challenge Apple and RIM in the smart phone market here? Will its foray into the entertainment world be profitable? It’s the longer term answers to these questions that will prove a portfolio manager right or wrong.

What does our global equity manager think? Edinburgh Partners likes the Nokia story. They’re attracted to the company’s strong market leadership position and its long-term secular growth prospects. As well, they feel the balance sheet is duly strong and the business generates an immense amount of cash. The stock is among the Global Fund’s top 15 holdings.