Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is due to publish its 2Q13 results on July 18. Before earnings, Nokia has unveiled its latest Lumia smartphone — the Lumia 1020, which is equipped with a 41-megapixel camera, in its latest bid to catch up with rivals Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and Apple Inc. (NASDAQ:AAPL).
Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN) perceive a risk with Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s 2Q13 results following weak cash flow performance announced on July 1. This weakness should come from featured phones, while smartphone business should continue to ramp up. This could lead to a correction in the stock following its good recent performance. However, this does not change their fundamental positive view on Nokia. Santander rating is Buy with a target price of €5.50/share.
Demand For Nokia Lumia Smartphones Will Continue To Ramp Up
Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN) estimates that demand for Lumia smartphones will continue to ramp up based on a more complete portfolio and improved end demand. They estimate volumes of 7.8mn smartphones in 2Q13 (8.0mn consensus), of which 7.5mn would be Windows phones, with an ASP of €185.50 (€175 consensus), which means -2.8% QoQ and +22.8% YoY.
Nokia’s Operating CF in 2Q13
When announcing its agreement to acquire Siemens’ 50% stake in NSN, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) said that its gross cash position had been reduced by €0.4-0.9bn in 2Q13, which could foreshadow a weaker-than-expected quarter. In this connection, market attention should focus on Nokia’s operating CF in 2Q13: Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN) estimates €-231mn assuming an increase in working capital, pointing to higher demand for the coming quarters.
Tough Business Environment in Featured Phones
Banco Santander, S.A. (ADR) (NYSE:SAN) (MCE:SAN) believe a tough business environment continued to prevail in 2Q13E in featured phones. They expect a 27.9% YoY drop in volumes to 53.0mn in 2Q13E (56mn consensus) and a 1.6% QoQ drop in ASP to €28.00 (€27.60 consensus). This should mean a total drop of 24.0% in sales of Devices & Services in 2Q13E (24.2% consensus) to €3,059mn and a non-IFRS operating margin of -1.3% in 2Q13E, slightly above Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) ’s guidance of -2% and consensus of -1.8%.
Wall Street and investors are planning on more of the same in the upcoming second-quarter earnings report. It’s expected that 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.