Nokia Corporation (NYSE:NOK) is scheduled to report its Q1, 2013 earnings on Apr 18. In one of the latests report by Morgan Stanley, analysts predict Nokia Corporation (NYSE:NOK) could disappoint in its Q1 earnings results. However, a report issued today by JPMorgan Chase & Co. (NYSE:JPM) tells us a different story.
According to JPMorgan Chase & Co. (NYSE:JPM)’s report, the ramp of products such as Lumia 920T in China, Lumia 620/820/920 in multiple new markets will mean the bear thesis on Nokia Corporation (NYSE:NOK) will not work in 1Q13 results despite main earnings driver NSN taking a breather after a very strong 2H12. Thus analysts from the firm believe short-term risk of Nokia Corporation (NYSE:NOK) missing estimates is low. However, if Lumia 520 in particular does not gain traction, risks increase rapidly later in the year. Market will also focus on cash conservation/position.
Nokia Corporation (NYSE:NOK)’s Windows 8 handsets received better traction than their Windows 7.5 handsets and though there were reports of lack of product availability, it was mainly due to lack of shipment rather than massive consumer traction. Availability of the Lumia 920 and 820 was better in 1Q13 and the 920T also shipped into China thus sell in which is what Nokia Corporation (NYSE:NOK) reports has low risk of missing in the quarter because if sell through does not occur, it will only be seen in 2Q/3Q results. The price differentiated Lumia 520 did not ship to most major markets in 1Q thus will not be a major factor in shipments or in terms of selling price.
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Analysts model a decline in mobile phone shipments – 68.1m in 1Q13 vs. 70.8m in 1Q12, data-points on the ground in particular in India which is a key market for these handsets, do not indicate collapse (as data-points in China did last year). Thus with ongoing cost cutting, the mobile phone business is likely to remain profitable.
Focus on Cash
Nokia Corporation (NYSE:NOK) has guided to total cash restructuring outflow of €350m (D&S: €150m; NSN: €200m) in 1Q13. Taking into account these restructuring cash outflow, analysts estimate Nokia’s 1Q13 CFO of -€394m (cons: -€392m) & FCF of -€472m. Analysts at the firm estimate 1Q13 net cash of €3.8bn (cons: €3.7bn) vs. €4.4bn/€4.87bn in 4Q12/1Q12.
Nokia Q1 expected to be in line with guidance to potentially slightly better:
Nokia Corporation (NYSE:NOK) had guided to D&S EBIT margin to -2% (midpoint), NSN EBIT margin of 3% (midpoint) & a loss in the Location & Commerce. JPMorgan Chase & Co. (NYSE:JOM) estimates 1Q13 group sales of €6.46bn (-20% QoQ, -12% YoY) vs. consensus of €6.48bn. The research firm estimate 1Q13 group EBIT of €42.8m/0.7% vs. cons of €9.1m/0.1%. The firm estimate Lumia sales of 5m units vs. cons of 5.64m units and 4.4m in 4Q12. JPMorgan expect D&S EBIT margin of -2% (in line with guidance & cons) & NSN EBIT margin of 4.5% (guidance 3%/cons 4%). Their adjusted EPS estimate for 1Q13 is -€0.04 in line with consensus.