Nokia Corporation (ADR) (NYSE:NOK) Gets A Reality Check

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Nokia Corporation (ADR) (NYSE:NOK) Gets A Reality Check

Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) shares have been rallying strongly in the last few weeks, and some people think that is not such a great thing. Bank of America Corp (NYSE:BAC) analysts believe a lot of hope is now built up in the share price. They think that the shares have rallied due to technical reasons (very high short interest ratio), seemingly positive comments from Microsoft Corporation (NASDAQ:MSFT) and AT&T Inc. (NYSE:T) CEOs on Windows Phone uptake, NSN restructuring, China Mobile Ltd. (NYSE:CHL) (HKG:0941) news on the 920T, and the sale and lease back of its HQ. However, in the absence of hard data on Lumia volume sales, they believe such enthusiasm seems misplaced.

In a report from Wednesday, they note that Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) will have trouble matching Android.  With white-box OEMs selling dual core Android models with 4-4.5’’ displays at c. $150, BAML analysts believe that the current appeal of the Asha touch product line (priced at $99) may rapidly fade, given its inferior hardware specs (single core CPU/smaller screen) and more limited apps choice. Similarly, while the specs and industrial design of the WP Lumia 620, which launched yesterday, are comparable to their Android counterparts, the headline ASP seems high ($249), given the immaturity of the WP OS and more limited apps choice.

Furthermore, they are unimpressed with the recent deal with China Mobila. Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) announced this week that China Mobile Ltd. (NYSE:CHL) (HKG:0941) will sell its flagship WP model, the Lumia 920, by year-end. This phone comes equipped with a broadband modem compatible with China Mobile’s home-grown 3G technology (TDSCDMA). n terms of retail price, Nokia announced the phone would sell for c. US$740 unsubsidized.

China Mobile recently commented they would spend c. US$4.2bn on handset subsidies next year, ahead of 4G trials, but it is not clear whether this phone will receive substantial subsidies at this point.

BAML sees the announcement as a positive for sentiment, as China Mobile Ltd. (NYSE:CHL) (HKG:0941) is the largest wireless carrier in the world in terms of subscribers (c.700m) and its support for Windows Phone is certainly encouraging. They point out that similar support was given to Symbian for TD phones in the past, but it did not lead to substantial sales. They also note that Apple Inc. (NASDAQ:AAPL) started selling the iPhone 5 in China yesterday (available through China Telecom and China Unicom for the time being).

However, Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) is a different story.  Given the high ASP of the Lumia 920T, it seems reasonable to assume modest unit sales for the device (c. 100-200k in 1Q13), which equates to 1.5%-3.0% of our D&S revenue estimate for 1Q13E. They estimate Nokia will sell 8m WP devices in 1Q13 at an ASP of €195 (up from 5m in 4Q12) as geographic distribution improves.


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