Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is beginning to feel its toes and could NYSE:NOK) Up Again On Lumia Sales" href="http://www.valuewalk.com/2013/01/nokia-corporation-adr-nysenok-up-again-on-lumia-sales/" target="_blank">soon be up, albeit due to the cyclical nature of the industry. Technological upgrades are set to be a prime catalyst in the Finnish mobile device makers’ recovery. Nokia Siemens Network (NSN) business unit is also expected to report NYSE:NOK) Soars 22% On Strong Pre-Earnings" href="http://www.valuewalk.com/2013/01/nokia-corporation-adr-nysenok-soars-22-on-strong-pre-earnings/" target="_blank">solid results, while margins are tipped to be between (13-15) percent, compared to a guidance of 9 percent. However, Nokia will not achieve this cheaply.
The ailing giant must first overcome the ominous challenge emanating from the likes of Apple Inc. (NASDAQ:AAPL) and Research In Motion Limited (NASDAQ:RIMM) (TSE:RIM). The latter is expected to launch BlackBerry 10 at the end of this Month; a device whose platform has been touted as the iOS killer. Moreover, what about Google Inc (NASDAQ:GOOG)’s Android, or Microsoft Corporation (NASDAQ:MSFT)’s Windows phone? The BlackBerry 10 will certainly stir market competition, but killing iOS? Well, we will have to wait and see. That said, it is clear that it will not be a walk in the park for Nokia. It will take time before the Lumia phone completes the turnaround, if it ever happens.
In a note send to investors on Thursday, Nomura Equity Research analysts, Stuart Jeffrey and Woo Jin Ho, upgraded Nokia’s Business sector from Underperform to Neutral. However, the analysts expect the sector to drag during the first quarter of 2013, and pick up in Q2-Q3 going forward. Ultimately, the analysts don’t expect Nokia to begin its rebound in January, as the 2012 hangovers dragged through last year’s Q4. Additionally, this first quarter will involve several events including the launch of BB10, which might destruct any milestones gained by Nokia. In addition, Mobile World Congress is coming up in February.
In the report, the analysts wrote, “We expect tough 2012 trends to have persisted through Q4, resulting in sub seasonal revenue growth trends. Consensus expectations seem to have factored this in already, yet surprises seem inevitable. We expect handset trends to remain healthy in 2013, and see scope for improving trends in enterprise and carrier infrastructure, largely driven by [the] industry’s cyclicality. We don’t expect trends to pick up meaningfully in Q1, but to gradually improve through the year with scope for surprises to emerge in Q2 and Q3”.
Furthermore, the analysts pointed to recent reports of Apple Inc. (NASDAQ:AAPL) cutting its iPhone 5 production by 50 percent as warning signs on falling consumer demand and their sensitivity to pricing. Currently, Apple boasts the highest gross margin in the smartphone industry due to its high premium placed on its devices. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), which currently operates at a near zero margin, will be up against the same market demand. This could results in a fall of Apple’s gross margins, which is indicatively adverse for the industry.
Service providers are also not providing the quickest initiatives for Nokia. While carrier spending remains muted, expectations for Ericsson, Alcatel-Lucent and Juniper are low and achievable in our view. “Operator spending seems set to recover in 2013 (in our view), but this may only show in vendor revenues from Q2”, the analysts noted.