nokia oppenheimer model

Nokia is having a strong Q4 according to channel checks by analysts at Oppenheimer. Yesterday, Oppenheimer released a report on Nokia titled, ‘don’t Confuse a Decent 4Q with the Challenges Ahead; Reduce Risk.’ As the title suggests, Oppenheimer analysts believe that Nokia will have a better than expected fourth quarter, but remain cautious over the long-term future for the Espoo, Finland based company.

Based on their checks Oppenheimer believes that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is seeing decent 4Q12 demand and they are slightly raising their estimates. Their checks point to balanced demand across all smartphone platforms (Symbian, WP7, WP8) benefiting from channel fill and strong carrier/Nokia/Microsoft Corporation (NASDAQ:MSFT) marketing.

They also believe the Asha portfolio continues to gain traction in what is traditionally a strong quarter for feature phones. And with positive trends at NSN, they expect operating margins to show upside. All of this said, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) faces many challenges, including stronger Android competition for Asha, lower marketing efforts in 1Q13, and an unproven WP8 portfolio. They believe investors should step to sidelines ahead of what is going to be a challenging and telling 1H13.

Smartphone traction. Based on channel checks they believe Nokia’s smartphones are seeing decent demand in 4Q12, and they project 8M-9M smartphones to ship in the quarter with demand roughly equally balanced between the Symbian, WP7 and WP8 platforms.

WP8 portfolio needs to evolve.

The Lumia 920 is seeing good demand although reviews are somewhat mixed. For Nokia’s Windows strategy to succeed, a broad portfolio would need to gain traction and none of Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s other WP8 devices (820, 510, 620) has yet to impress. It’s critical that Nokia address this in 1H13.

Can momentum be sustained?

While the Lumia 920 is seeing solid interest, investors can’t ignore the fact that it’s benefiting from strong subsidies from carriers and Microsoft Corporation (NASDAQ:MSFT) as well as discounting from Nokia. These efforts will moderate in 1Q13, raising the key question of momentum sustainability.

Feature devices and NSN contributing.

Their checks suggest a solid 4Q12 for both NSN and Nokia’s Asha feature phone portfolio. Oppenheimer notes the progress at NSN building on a long reorganization. But question the sustainability of Asha’s success given an expected wave of low-priced and strongly powered Android devices in 2013.

Wait for 1H13, reduce risk.

Nokia’s stock has appreciated considerably in recent weeks. That said, they don’t believe the long-term questions have been answered. With expectations rising, Oppenheimer sees risks and suggest investors move to the sidelines until 1H13 proof points present themselves.