Nokia Corporation (ADR) (NOK) Improving Network Margin: A Big Positive

Nokia Corporation (ADR) (NOK) Improving Network Margin: A Big Positive
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For the third quarter, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) posted mixed results as on some counts they were below the estimates, while some of the numbers surprised the analysts. Top line numbers for all segments came in less than expected with group revenues coming in at $7.50 billion against expectations of $7.89 billion. One of the positive for the Finnish firm was the improvement in gross and operating margin, says a report from Citi Research.

Nokia Corporation (ADR) (NOK) Improving Network Margin: A Big Positive

Positives for Nokia

Citi analysts noted some of the positives for Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) going forward. The company expects 12% adjusted operating margins in Networks, for the fourth quarter, which is above the consensus estimate of 9.8%. The Finnish firm’s above-consensus guidance for its Networks segment operating margins will boost the sales. For the fourth quarter, management expects $2.06 billion opex and production cost reductions in Networks on an annualized run rate basis compared to the $1.37 billion in the fourth quarter of 2011.

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Analysts expect a high gross margin driven by more efforts from carriers to enhance the capacity instead of expanding coverage. For the past 8 quarters, the Networks division has been consistently producing positive operating cash flows. Management appears confident on its present product portfolio, which lowers the possibility that the company will acquire any major rival. HERE segment recorded an EBITDA of 9.5%, well above the consensus of 4.8%, according to analysts “given sales to new vehicle OEMs.” After handing over the devices segment to Microsoft, management will look for more ways to monetize “existing mobile customers.”

Estimates raised

The earnings call gave more information about the handling of IP royalty after the takeover of Devices segment by Microsoft Corporation (NASDAQ:MSFT). Also, executives discussed the increase of revenues in Networks, and how the company plans to utilize the cash, which is $9.94 billion ex the Devices business.

Citi analysts have revised their EPADR estimates for 2013 and 2014 as the Devices segment will not be reported for the quarters ahead. Citi analysts now expect EPDAR of $0.13 and $0.49 from the previous estimate of -$0.01 and $0.18, for 2013 and 2014, “on lower overall revenues but higher margins and the full benefit of Networks segment as they have completed the acquisition,” says the report.

Analysts have also raised the price target for Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) from $6.19 to $7.42, which reflects the new earnings assumptions. Until more information on how Nokia plans to use its cash and patents is available, analysts have maintained a Neutral rating on the stock.

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