Nokia

A research report from SEB Enskilda, gives a ‘Hold’ rating on Nokia Corporation (NYSE:NOK)’s stock, as it expects that the Windows Phone strategy, currently followed by Nokia, will not help it to turn around its smartphone business in the third quarter. The Windows strategy won’t work in the third quarter because the “ongoing transition to Windows Phone 8 OS” depends on the launch of the new Lumia 920/820 devices, but these new devices will be available to consumers only towards the end of the fourth quarter.

Focusing on the company’s cash position, the report expects a weak earnings visibility, “and the Q4 consensus for Devices & Services assumes, optimistically we believe, no margin for error in the form of possible write-downs or new device rollout”. On the prospects of Nokia Siemens Network (NSN), the report expects “further margin improvements in Q4 on seasonality”. The research report forecasts consistent and clean results from Nokia’s Corporation (NYSE:NOK) Location & Commerce segment.

Coming to the numbers for the third quarter, the handset maker is expected to post a “non-IFRS loss per share of EUR 0.10”. For Devices & Services, the report expects an EBIT margin of -8.5 percent against the consensus of -8.7 percent. Company’s net cash is expected to reduce to EUR 3.74 billion from EUR 4.3 billion at the end of the second quarter. As per the report, the Lumia shipments are expected to decline from 4 million to 3.5 million.

Lumia shipment

“In our view, the Q4 consensus expectation of an improvement in the Devices & Services margin to –3.9% contains no margin for error, similar to the write-downs of EUR 220m it made in Q2” says the report. However, amid all this negative news for the company, the report expects the “new Lumia 920/820 devices to be popular, they are not yet available in stores”.

Estimate revisions

SEB lowers its estimates of clean EPS for 2013, from EUR 0.06 to EUR 0.02 and for 2014 from EUR 0.18 to EUR 0.17, on account of lower Lumia shipments. 2012 EPS estimates have not been revised by SEB, mainly due to a “cut in volumes, but higher ASP, due to the boost from the Lumia 920 and 820”.