Nokia’s Recovery in 2012 Supports $6.60 Estimate
Nokia (NYSE:NOK) recently announced its Q2 earnings and highlighted that it doesn’t expect major improvements in the near-term, but over times its Microsoft (NASDAQ:MSFT) partnership will help bring about product differentiation and cost savings in the medium term. [1] It reiterated its target of reducing operating expenses by 1 billion Euros by 2013 from 5.65 billion Euros in 2010. However, in the next quarter Nokia expects its mobile business to just about break even. [2] Nokia clearly continues to struggle against Apple’s (NASDAQ:AAPL) iPhone and Google’s (NASDAQ:GOOG) Android phones in the smartphone segment as well as in the low-end handsets segment for emerging markets, which historically has been its strength.
Our revised $6.60 price estimate for Nokia stock is about 15% above market price.
Nokia positive about Microsoft transition
Nokia mentioned that it is prioritizing the transitional phase of migration of its smartphones from Symbian to Microsoft’s Windows Phone 7 platform and plans to ship its first device based on the Microsoft’s platform this year. It also mentioned that the developer interest in its Ovi app store as well as Windows Phone’s has increased. [1]
Developer interest is an important aspect in the development of the app ecosystem, which in turn is becoming an important parameter in the success of mobile phone platforms. WE point to Apple and Google as examples of the how the app support helps make smartphones successful. Nokia desperately needs this development as it’s market share continues to decline in emerging and developed markets.
Margins recovery will be the key
As mentioned above, Nokia expects large cost savings through Microsoft deal. This is important from Nokia’s point of view as its margins continue to decline at a fast rate. However, Nokia could put the brakes on this decline from 2012 onwards when the transition to Windows platform would get completed. Improved profit margins support our sanguine outlook for the company.
See our complete analysis for Nokia
- Nokia Q2 2011 earnings conference call transcript, SeekingAlpha, July 21st, 2011 [↩] [↩]
- Nokia investor relation press release, July 21st, 2011 [↩]