http://seekingalpha.com/article/828791-nokia-a-worthy-buy-now
Nokia Corporation's (NOK) shares are up nearly 90% from their low reached in July, after a series of positive news added optimism for the company's prospects. Sentiment reversed ever since Nokia reported earnings on July 19 and shares fell well below $2. Since then, Nokia announced the sale of Qt software, a compiler for Symbian apps, launched the Asha 311 smartphone in the UAE, and is rumored to be launching Windows Phone 8 on Verizon Communications (VZ) this year. More recently, it was noted on Seeking Alpha's market currents that two Windows Phone 8 devices will be announced as early as September 5.
The feature phone market in Asia remains an important area of growth for Nokia. Asha 305 devices were reportedly sold out after their debut.
With Nokia shares recovering from all of the declines made since June, should investors be buying?
Click to enlarge
(Chart Source: Finviz.com)
Second Quarter Earnings Summary
Nokia sold 4 million Lumia devices during the quarter, a 200% increase from Q1. Net cash declined by EUR 700 million in the last quarter to EUR 4.2 billion. Gross cash was EUR 9.4 billion. Smart device sales declined 10% sequentially, mainly due to lower sales for Symbian.
There was EUR 220 million in allowances from its Smart Devices unit to recognize excess component inventory. Nokia warned that future allowances could be made dependent on future sales. The net impact on the recognition was a 550 basis point decline in gross margins for its devices and services unit.
The company said it would address the impact of Windows Phone 8 ("WP8") for WP7 sales through promotional activities. Strategically, Nokia plans to differentiate itself from competitors by redefining mapping and location-based NAVTEQ services.
Reasons To Buy
Sales increased in China and in Latin America for Lumia 610 and 900 devices
Nokia Siemens Network ("NSN") is no longer a drag for Nokia: NSN contributed to EUR 1.8 billion in gross cash, and EUR 380 million in net cash
The Asha feature phone product will help Nokia sustain its global market share
Upside for Windows Phone 8 release not fully reflected in stock price
Apple's (AAPL) win over Samsung will make Nokia-Microsoft phones more appealing for carriers
Windows Phone 8 will be supported with updates from Microsoft for at least 18 months
Successive Lumia launches will be accompanied with better support at the retail sales level
Reasons to Avoid
Microsoft's (MSFT) Windows 8 Phone announcement will damage sales for Windows Phone 7 in Q3
Pressure to keep selling products at lower price points will keep hurting margins
Conclusion
Nokia is a speculative company to buy. Shares sold off sharply after the company reported earnings, but rebounded just as quickly. The company's current quarter is not expected to be strong, but investors with a longer-term time horizon could see any weakness in its shares as a buying opportunity. Traders will try to push shares below $3 in the near term. Yet, if Nokia shares are able to hold the $3-level, positive sentiment for Microsoft's Windows 8 launch will be an added positive for Nokia's shares.
In the options market, open interest for January 2013 $4 and $5 calls are especially high. Samsung's patent loss against Apple will change the cost of Android for other manufacturers. In response, manufacturers might look at Windows Phone 8, since Microsoft has many cross-licensing agreements with Apple. With a WP8 launch under more receptive circumstances, Nokia stands to be the leading manufacturer that benefits the most. Investors may very well bid shares up to $5 well before the 2013 options expire. |
Thread abonnieren
