Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will release its second-quarter results on Thursday, July 24 at 8:00 a.m. Finnish Time (1:00 a.m. EDT). Since the company exited its handset business, all eyes have been on the turnaround at its Networks unit. Analysts on average expect Nokia to report $0.07 in EPS with revenues of $3.91 billion. The company had generated $7.44 billion in revenues in the same quarter last year. The estimated 47.50% decline in revenues is due to the sale of its device unit.
Networks unit holds key to Nokia’s Q2 results
Societe Generale analysts Andy Perkins and Peter Knox said in a research note Tuesday that they expected the company to report €3 billion in Q2 revenues with €0.05 per share in earnings. The research forecasts Nokia’s operating margins to come in at 10.5%. Networks business will hold the key to the quarter as it accounts for 89% of the Finnish company’s total revenue. Operating margins at Networks unit are expected to decline from 9.1% in Q1 to 8% in Q2.
At the end of June, Nokia is estimated to have as much as €6.5 billion in cash. Analysts said that Nokia’s Networks unit as new CEO Rajeev Suri exists some unprofitable contracts. Networks revenues fell 18% in 2013 and 17% in the first quarter of this year. However, Nokia is fighting back. The company has won some big contracts including those from Sprint Corporation (NYSE:S) and China Mobile.
Societe Generale reiterates its ‘Buy’ rating on Nokia
Therefore, Societe Generale expects the rate of revenue decline to slow sharply in the second quarter. The research firm forecasts Networks revenues to decline only 2% YoY in Q2. In contrast, Q2 revenues at Ericsson (ADR) (NASDAQ:ERIC) (STO:ERIC-B) fell 6%. Societe Generale has a Buy rating on Nokia with €5.80 price target. For Nokia’s American depository receipts, Societe Generale has set the price target at $7.83.
Nokia’s Networks division is likely bidding extremely aggressively for new contracts. Though it may help the company boost revenues, aggressive bidding could reduce margins.