Nokia Corporation (ADR) (NOK) Q4 Earnings Preview

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DNB Markets analyst Fredrik Thoresen rates Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) as a Sell as the consensus estimates for the smartphone maker narrows.

While the consensus expectation range has narrowed over the past week, there is still high dispersion for Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) before the Q4 report on Thursday, even when adjusting for the sale of its handset operation. For sales, we are ~3% above on Networks, and slightly below on the Navigation and IPR businesses.

Standard deviation in the single digits

SME Direkt consensus for Q4 has come in from a standard deviation of 45% to 7% on non-IFRS operating income, as Nokia reiterated its intention to report its handset operation as discontinued last week. We are 3.1% above the consensus on net sales (EUR3,602m versus SME Direkt EUR3,492m), and 5.3% above on non-IFRS operating income (EUR496m versus SME Direkt EUR471m). When adding the underlying non-IFRS operating income for the sub-segments, however, we are a mere EUR3m apart.

Nokia’s NSN sales estimates

We expect Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s NSN to report EUR3,249m (-19%YOY) in net sales in Q4, 3% above the consensus (SME Direkt EUR3,155m), as deliveries on the 4G rollout contract with China Mobile Ltd. (ADR) (NYSE:CHL) (HKG:0941) should alleviate some of the decline from projects nearing the end in South Korea and Japan.

First quarter of insight into IPR business

As we highlighted in our initiation on 7 January, valuing the less than transparent IPR business (~30k patents) with an annual turnover of ~EUR500m remains challenging (EUR2bn in our SOTP) for Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V). Q4 will mark the first quarter that we can get an insight into its profitability and potential information regarding its outlook, both with regards to the 10-year agreement with Microsoft Corporation (NASDAQ:MSFT) and arbitration with Samsung. For 2014, however, we are in line with consensus, expecting non-IFRS Operating income of EUR376m (SME Direkt EUR375m).

Nokia’s handset speculation

While images of what is believed to be a Nokia handset (“Normandy”) running Google Android emerged on blogs ahead of the Holidays, speculation with regard to its future intensified last week as more images emerged. We believe reported specifications point to a lower-end offering, perhaps a replacement for the company’s current Asha product (Symbian), and while Microsoft Corporation (NASDAQ:MSFT) could do an Android fork (like Amazon), Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is unable to re-enter the handset business until 2016 at least as part of the agreement with Microsoft.

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