For years, Nokia Corp. (NOK) had dominated the mobile phone industry with its practical shape and simple interface. Recently, Nokia had faced stiff competition in the smart phone industry from Research in Motion and Apple.

Lately, while there are several new entrants in the smart phone category such as Dell, Nokia has been bucking the trend with the intention of going into the netbook entry. What is netbook? Netbook is a lower segment of the laptop market with price starting from as low as $ 300. The purpose of netbook is for entry level users who will use computing for browsing the internet and doing simple applications such as Microsoft Office. Netbook is made popular by Asustek and Acer two years ago. Now, everyone is jumping ship into this netbook category.

But Nokia is a very different story. It has dominated the hand held market which has a fatter profit margin than the PC industry, let alone the netbook. After all, there is not much profit left for a $ 300 netbook preinstalled with softwares and microchips. There is speculation that Nokia can gain significant advantage by pushing these netbooks towards vast network of Nokia's own stores depicted on the left. Nokia may save some distribution cost this way, but we don't think it will make selling netbooks a profitable venture.

Realizing the convergence of mobile phone and PC, Nokia probably is just trying to defend its turf. After all, Nokia will be hurt the most if netbook start replacing smart phones. Apple started from its PC lines, before branching towards smart phones in 2007. Thus, Apple can reap the benefit either way. Of course, Apple is not going to sell a low-end laptop anytime soon but in the event of the convergence of mobile phone and PC, Apple can have some leeway.

Over the broad picture, Nokia still has a commanding lead in the mobile phone category with more than 35% of market share. In the smartphone category, Nokia has a lot of catching up to do with Apple and Research in Motion. Meanwhile, smartphone is the only growing segment in the mobile phone industry right now, amid the global financial recession. Furthermore, Nokia has an enviable balance sheet, with $ 9.5 Billion of positive net cash versus $ 51.3 Billion in market capitalization. This, coupled with a 3.8% dividend yield, has tempted investors to scoop up Nokia's shares. However, we must caution that Nokia may have some tough bumps ahead and the announcement of entry into netbooks might actually hurt Nokia's performance in the medium term.