Wall Street and investors are planning on more of the same in the upcoming second-quarter earnings report,expected before the market opens on July 18, 2013. The consensus opinion is presently losing two cents a share, a very small amount of eight cents (%) over losing ten cents during the corresponding period last year. Analysts are estimating as low as losing 13 cents per share, up to the most optimistic estimate of nine cents per share.


Morgan Stanley: Forecasts Remain Below Consensus

Morgan Stanley (NYSE:MS) forecasts remain below consensus, reflecting caution on Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s ability to increase market share in smartphones vs. Android, and that feature phones continue to be under pressure as consumers migrate to low-end Androids.

In their bull case, if Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) can increase smartphone share to 5-10%, gross margins approach 25% and declines in feature phones cease, operating margins in Devices could reach high single digits. They will track inventory levels at the end of Q2 to measure channel levels of Asha phones. In the NSN deal announcement, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) disclosed their Q2 estimate for gross cash of €9.2bn – €9.7bn, indicating cash burn of €300-800m, an acceleration from Q1.

Morgan Stanley: Feature Phone Shipments

They forecast 8m Lumia shipments in Q2 (+43% q/q) compared to guidance of at least 7.1m (+27% q/q). On Morgan Stanley estimates, Lumia shipments would be 13.6m compared to their estimate for 35m total in FY13e.

Morgan Stanley (NYSE:MS) forecasts feature phone shipments of 55m in Q2, in line with Q1. Q2 saw the addition of several further Asha models. However, they expect more competition from Samsung’s new “Rex” range, and management has indicated that Q2 will see headwinds from inventory depletion. They forecast feature phone shipments rising to 62m in Q3 and 68m in Q4.

Morgan Stanley: Operating Margin and Gross Cash

They forecast operating margins of 1.3% in Devices & Services (guidance -2%, +/- 4 percentage points), and 7.5% on NSN (guidance 5%, +/- 4pp). Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) has guided for gross cash of €9.2-9.7bn as at end of Q2, net cash of €3.7-4.2bn, implying cash burn of €300-800m in Q2. Poor performance should be expected in handsets, though they believe the lower end would also imply substantial cash burn in NSN. For NSN they forecast revenue of €3.2bn, -5% y/y and +13% q/q.

What to Watch For

Q3 guidance – Management could give further guidance on Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s Lumia volumes after being more precise on Q2. Morgan Stanley estimate Lumia shipments of 9.5m in Q3.

Cash burn – Management has guided for net cash of €2.0-2.5bn at end of Q2, pro forma for the NSN stake purchase. Management may look to indicate further strategic moves that could bolster cash level.

Nokia Lumia and new Asha introductions

Operating margins – Morgan Stanley (NYSE:MS) currently forecast positive operating margins of 4% in Devices in Q3, which would be a strong return to profitability. They also forecast operating margins remain high at 7% for NSN due to strong contributions from cost cutting.

Inventories to assess channel levels, both on Lumia and new Asha introductions.