Tuesday, January 16, 2007

Color on Nokia (NYSE:NOK)

Couple of firms are commenting on Nokia (NYSE:NOK) ahead of results:

- Goldman Sachs sees 13% potential upside to their 3-month price target of EUR17 and adds
Nokia to their Buy and Conviction Buy Lists (was Neutral). In firm's view, a perfect storm of negative newsflow (Motorola's profits warning, Apple's iPhone launch, broker downgrades) has coincided with the bottom of Nokia's product cycle, driving 17% underperformance vs. the FTSE Europe since July and over 25% vs. Alcatel-Lucent and Ericsson. GS notes they have high confidence that Nokia will post solid 4Q EPS of EUR0.27, allowing 2007 EPS estimates to bottom, while new products should drive a recovery in sentiment as well as ASPs and gross margins during 1H2007.

They expect Nokia to deliver solid (and possibly better than expected) 4Q results on January 25. Firm's checks indicate that Nokia has enjoyed strong European demand relative to its disastrous 3Q, which mitigates the impact on ASPs from extra low-end units in emerging markets. They model a 4Q ASP of EUR90, slightly below consensus but well above the bear-case. Additionally, they believe that given sell-out low-end demand, Nokia has not experienced price pressure, underpinning gross margins. Further, at 3GSM in February, new product launches could re-ignite hopes for a turnaround.

- Jefferies notes Nokia has suffered over recent weeks 'by implication'. The Motorola Q4 pre announcement, which featured sharply lower ASP's and margins, was taken as a negative signal for the Finnish company. However, experience shows that it is dangerous to draw conclusions by extrapolation from others; be they subcontractors or competitors. In this case the waining of the RAZR, and relative lack of traction of the successor KRZR could have positive implications with regard to Nokia regaining ground in the mid range.

Samsung's subsequent announcement on Q4 06 was much more upbeat, but attracted less attention. Handset volumes of 32m were in line with market consensus, but the $1 sequential (and annual) increase in ASP to $176 was well ahead of expectation, and contrasted sharply with the 15%+ (sequential) decline at Motorola. Moreover this was despite a substantial shift in mix to the Asia Pac markets (+60% YoY) vs Europe (+19%). The company noted positive trends in smart phone demand and WCDMA, where Nokia has above average share (40%+)

Firm's numbers put Nokia on 13.5x 2007. Take out restructuring and adjust for cash and its 12x; Cheap for a leading global brand. Meanwhile they expect solid Q4 numbers and confident a outlook based on improved products. Maintains Buy.

Notablecalls: Check out my comments on Nokia from Jan 10. It sure looks like we won't see a warning from the co and the stock has started to creep up. Expect that to continue. Would not overstay my welcome, though.

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