Analyst Rating Will Hurt Nokia in the Short Term
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It may turn out to be a couple (more) difficult days as Nokia kicks off the week’s trading. The stock is sure to see additional pressure as investors absorb the latest guesstimates from long-time Nokia (NYSE: NOK) analyst Andy Perkins – rated in the middle of the pack by StarMine for his earnings estimates – now that he’s jumped off the Lumia 900 wagon train. Mr. Perkins recently had this to say about Nokia's near future, “…there could be further, substantial fall in sales with more restructuring.”
The concern is primarily what the additional fall in sales – should it come to pass – would mean to Nokia’s saving grace, a cash position of EUR10 billion (just shy of $13 billion for you and me). If sales decline 30% as Andy believes, it’ll be necessary for Nokia to use large portions of cash to cover the restructuring costs that would surely follow. Though the EUR 2 billion he forecasts would make a dent – it would hardly “…bring into question Nokia’s very survival...” as he suggested should unit sales continue their slide.
Why the Extreme Prediction?
As noted in earlier articles, Nokia management must – and to their credit has - taken some of the blame for the recent slide. The company got so excited about the partnership with Microsoft (NASDAQ: MSFT) and their operating system – not to mention their quick implementation and introduction of the Lumia 900 to the market – the sales forecasts were a bit over the top. Apple’s (NASDAQ: AAPL) iPhone and Google’s (NASDAQ: GOOG) Android OS are nothing if not firmly entrenched. Breaking into the market with any real splash was never going to happen as quickly as Nokia’s CEO Stephen Elop had predicted.
The result? Shareholders and analysts alike began a chorus of “the sky is falling” and it’s picked up a head of steam. Recently losing out to Samsung as the number one seller of cellphones added fuel to what was already a pretty decent sized flame. Last week’s admission by former Nokia hero and Chairman Jorma Ollila that Nokia was too slow to enter the smartphone market wasn’t surprising, just true.
If you’re a ‘sky is falling’ type, Nokia certainly shouldn’t be on your list of possibles – it’s going to be a while. But there are a few things on the horizon that should bring a ray of hope to those willing and able to assume the risk and the time. The Lumia 900 didn’t take off like a rocket, in spite of management predictions it would. Superior products – and many analysts and early users agree the Nokia phone is already good and getting better – don’t immediately translate to superior sales. This is particularly true when the established heavyweights – Apple and Google – own about 80% of the market.
But the recent app agreements – some of them exclusive - with the likes of Rovio and their Angry Bird’s games, the PGA Tour, ESPN, EA and Groupon, will help shore up one of the biggest complaints Lumia user have – a shortage of download options. Also, Mr. Ollila confirmed Nokia has some new products on the horizon – a new tablet is expected to roll out by the end of this year – that are essentially waiting on Microsoft’s Windows 8 system to make it through the beta testing phase. And you can bet management will be more conservative with their sales estimates when they’re introduced to the market. A “hybrid” smartphone is another new edition to the Nokia lineup slated to be unveiled by next year.
No matter how you slice it, things are hardly wine and roses for Nokia – the company’s path remains an uphill climb. But in spite of what some analysts and investors believe, Nokia is a long way from the deathbed.
timbrugger has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Microsoft, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.