Avoid this Technology Stock

 blue-chipsAs we digest the earnings release of Nokia Corporation (NYSE/NOK), one of the traditional blue-chips of technology stocks, we can see that the changing landscape of innovation has damaged this firm to the point where perhaps a comeback is not even possible. Nokia was once one of the giants in the cell phone mobile industry, a leader amongst technology stocks. Although it does still sell overall the largest number of handsets, the majority of these are not smartphones.

Innovation is the key for technology stocks. Blue-chips that cannot come up with new products that consumers want will soon no longer be considered blue-chips. Nokia is a perfect example, as we have seen the changing landscape in technology stocks over the last 10 years. We now know Motorola Mobility, one of the former blue-chips, was gobbled up by Google Inc. (NASDAQ/GOOG). This old world of blue-chips ended up being a small, marginal player in the burgeoning world of technology stocks. It was a classic sign of a lack of innovation and no foresight into the market. Ultimately consumers did not want to buy their products.

Nokia is facing a similar dilemma. It is trying to transform itself into a smartphone maker, with the partnership of Microsoft Corporation (NASDAQ/MSFT), but being second to the party in these days against other savvy technology stocks means you are very far behind in the market. Nokia’s smartphone market share is miniscule compared to Apple Inc. (NASDAQ/AAPL) and Google’s smartphone operating systems. Several years ago, Nokia was worth in excess of $90.0 billion in market capitalization—today it’s just north of $15.0 billion, a decrease of 83%.

Worse news for Nokia: the latest product running Microsoft software has been hampered by a software glitch that is causing connectivity issues for clients, something you don’t want to hear from technology stocks. Another egg on the face moment for Nokia and Microsoft in the mobile sector. Some people may look at the dividend yield of Nokia, now over 4.6%, and possibly consider it as an investment. But I would advise caution, as this appears to be a value trap, especially as technology stocks normally don’t issue such big dividend yields. Just over the last several weeks, I’ve had several people ask me about Nokia as a long-term investment just for the dividend yield alone. I promptly told them to stay away for several reasons, including: it’s always a bad sign when technology stocks have revenues that are declining, corporate earnings that are questionable, and competitors that are eating them for lunch, and they have no new products that are sexy or innovative.

The new phone, the “Lumia 900,” by Nokia has promise, believe it or not. The 900 has fairly advanced hardware with a robust software operating system—when it’s working correctly; a real key for technology stocks. I will give Nokia credit that it is at least attempting to be competitive with other technology stocks at a competitive price point to try to match up and compete against the Google and Apple phones. The real problem when competing against other technology stocks, especially Apple, is that they have an environment filled with apps that people want. They’re also great at product development, as I outlined in my article, Three Key Products That Will Drive Apple in 2012.

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Chart courtesy of www.StockCharts.com

This is a three-year chart on Nokia and it shows that trying to pick the bottom is a very expensive and futile effort. Will Nokia be able to survive this onslaught from the other technology stocks? Difficult to know for sure. I do think that the new phone’s hardware from Nokia is a strong competitor—the problem is that people want the brand name and apps from other technology stocks like Apple, along with their “iTunes” ecosystem. I would stay away until we see a turnaround in market share and increase in corporate earnings.