Nokia Corporation (ADR) (NOK) Earnings: Bulls vs. Bears

Nokia Corporation (ADR) (NOK) Earnings: Bulls vs. Bears
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Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) to report earnings today. DNB Markets analyst Fredrik Thoresen is bearish, while Kulbinder Garcha of Credit Suisse is bullish. Below is a preview from Mark Sue and Ameet Prabhu of RBC Capital (who are bearish).

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Our view on Nokia

Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) recomposing its business may return excess cash to shareholders via buybacks/dividends. Networks is benefiting from share gains, restructuring and coverage/capacity additions, while HERE and IP licensing have potential to drive further upside. The balance sheet is getting better, providing Nokia financial flexibility, something that it didn’t have before. We reiterate our Outperform rating and our price target is $9.

Key points about Nokia:

Earnings this Thursday. Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) reports 4Q13 results before market-open on January-23 with D&S reported as discontinued operations following shareholder approval for the sale; the deal’s expected to close by 1Q14- end.

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Ex-D&S, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) may print results close to our revenue estimate of €3.55B (+21% QoQ) and the Street’s ex-D&S estimate of €3.45B. On the bottom-line, there are still many moving parts and we’re estimating an ex- D&S EPS of €0.03, vs. our printed (€0.04) loss estimate (includes D&S).

We expect NSN revenues to come in close to our €3.3B vs. consensus of €3.2B driven by pace of LTE build-outs. HERE may report €225M (+7% QoQ) in revenues, while our €150M revenue estimate for Advanced Technologies is conservative and may show the fastest rate of growth going forward.

Important metrics investors should focus on. Investors will scrutinize Networks’ operating margin trends (12%±4% guide), which may dip near-term due to regional mix.

Some investors are concerned carrier consolidation discussions may impact Sprint/T-Mobile spending, while N.American coverage projects may have peaked and China LTE buildout margins may be below the segment average. Revenue run-rate for Advanced Technologies is also where we get a lot of questions.

Further, investors are looking for commentary on how Nokia deploys additional cash post-deal via buybacks/dividends.

Why are most Nokia investors long?

NSN is now the focus area and Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s streamlined this business in the past few years, complemented by a diversified revenue stream from navigation and licensing. The cash position has improved dramatically and post-deal, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) may end up with a net-cash/share of ~€1.53. Carriers continue to upgrade networks to 3G/ LTE with Chinese carriers, Vodafone and Sprint/T-Mobile driving revenue upside.

Nokia’s patent licensing business may provide the most top-line delta, while HERE’s well-poised to grow beyond a €1.0B business.

Why are a few Nokia Corporation investors short?

Short interest is the lowest it’s been over the past year, but the stock’s also doubled during that period. Networks can be cyclical and investors are concerned RAN build-outs may have peaked in N.America, while it may be as good as it gets on Networks margins. HERE’s up against a tough competitor and as the HTC verdict in Germany indicated, it may not always be smooth sailing for the IP licensing business.

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