Nokia Corporation (NYSE:NOK)’s stock has experienced quite an impressive run. Since late July, shares of the ADR are up over 60%. Some think this is just the beginning of Nokia Corporation (NYSE:NOK)’s recovery. However, others are less impressed and think the stock and company cannot compete against the big players like Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG). BMO is the latest bank to downgrade Nokia Corporation (NYSE:NOK). They are lowering their estimates and rating on Nokia’s shares from market perform to underperform. They are still maintaining their US$2 price target.
BMO’s more cautious stance is based on a negative view of new Smartphones, continued decline in the feature phone segment, and a lack of realizable value in other parts of the business.
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BMO has been negative on Windows Mobile for a long time. They believe WP8 will be no different than prior iterations. BMO does expect a lot of fanfare upon the launch, but believe it is too little, too late for Windows Phone to become a viable competitor in the Smartphone wars. They now expect only 20M Nokia Corporation (NYSE:NOK) (BIT:NOK1V) Lumia devices in 2013.
Nokia Corporation (NYSE:NOK) (BIT:NOK1V)’s has had two issues hurting its Smartphone performance. First, its large lead was driven by Symbian products, which have grown out of favor materially over the past few years. Second, the company chose Windows Phone as its operating system, which is dramatically falling behind Apple’s iOs and Google’s Android, and has yet to catch up with RIM’s Blackberry OS.
Nokia Corporation (NYSE:NOK) (BIT:NOK1V) is gaining share in feature phones in 2012 by BMO’s estimates, but volumes should still be down by 13% with ASPs falling by 11%. They expect others to de-emphasize this market, but 2013 could see a similar industry drop of 15%. They believe gaining share in a market with declines like that will not help the stock.
BMO is encouraged by the restructurings at Nokia Siemens Networks (NSN). They believe margins could get better, but sales will likely keep falling. They do not see a buyer for this asset given its size and inability to improve margins. Navteq profitability has bounced back, but revenue growth has moderated meaningfully. This is one large asset than Nokia Corporation (NYSE:NOK) (BIT:NOK1V) could monetize, but it would detract value from the Smartphone business. Intellectual Property Rights (IPR) revenue remains a positive at about EUR500 million per year, but we do not expect much growth from this level, and the value of IPR assets has fallen all year.
Therefore, BMO is lowering their estimates for 2012 and 2013, well below consensus. Their 2012 revenue and EPS estimates go to EUR29.1 billion and EUR(0.34) from EUR29.4 billion and EUR(0.31). For 2013, they lower to EUR25.3 billion and EUR(0.25) from EUR27.6 billion and EUR(0.08). These are both well below 2012/2013 consensus of EUR 29.9 billion/(0.31) and EUR 28.8 billion/(0.03).
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