(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Quentin Webb
LONDON, Jan 18 (Reuters Breakingviews) - What does Nokia
NOK1V.HE boss Stephen Elop need to do this year? The ailing
mobile giant he leads ended 2012 surprisingly strongly. But the
market remains understandably wary. To convince sceptics, Elop’s
biggest task is ensuring top-end smartphone sales really take
off. The strategy for cheaper phones may need a rethink.
Floating Nokia Siemens Networks, the revamped network-equipment
unit, would help too.
Markets find it hard to value cases of distress and
turnaround such as Nokia. So analysts’ price targets vary
wildly, from 1.20 to 5 euros a share. Last week’s
pre-announcement of unexpectedly strong results sparked a rally
in Nokia shares. But a whole yacht club’s worth of U.S. hedge
funds are still betting against the stock.
A lot hinges on the newish Lumia smartphone range. Nokia
sold an encouraging 4.4 million Lumias in the fourth quarter.
But Elop knows real viability means a market share above 10
percent. That won’t be easy. Customers and taste-makers remain
to be convinced. Strategy Analytics forecasts handset-makers
will ship 875 million smartphones in 2013, a majority from
Samsung and Apple. That shows the scale of the challenge.
Elop might also quietly ponder whether Nokia needs other
partners besides Microsoft (MSFT.O), whose operating system
powers the Lumia. The risk is that cheap smartphones running
Google’s (GOOG.O) Android quickly erode Nokia’s huge-emerging
markets footprint, which relies on cheaper phones using in-house
software. At some pointing switching mid-range phones to a
promising new system backed by Firefox might be sensible. Or
Nokia could perhaps seek to use both Windows and Android.
NSN was a high point of the latest figures. The former
basket-case is much improved after cutting swathes of jobs and
focusing on the most profitable business lines. Nokia’s half
share, at say 0.5 times sales, could be worth about 3.5 billion
euros, before any new-issue discount, based on Liberum’s
forecast for 2013 revenues at NSN of 14.1 billion euros. Of
course Nokia would probably have to sell down in stages, and any
float depends on IPO markets having a strong 2013. But it would
show Nokia’s turnaround was bearing fruit.
But so much has to go right. No wonder the hedgies are
holding a steady course.
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- On Jan. 10, Nokia Corp said fourth-quarter results would
beat expectations, as its core mobile-phones unit returned to
profitability and its telecoms-equipment joint venture, Nokia
Siemens Networks, made record underlying profits. The surprise
announcement lifted Nokia shares 10.8 percent to 3.32 euros, a
9-month high. Nokia reports full-year results on Jan. 24.
- Nokia’s main “Devices & Services” unit sold 86.3 million
phones, worth 3.9 billion euros. Of these, 4.4 million were
Lumia smartphones running Microsoft’s Windows phone operating
system. Another 9.3 million were Asha touch-screen phones. These
devices, which are cheaper and less powerful than high-end
smartphones, are targeted at emerging-market customers.
- NSN, which has undergone a major restructuring, was helped
by focusing on high-margin business and keeping costs under
control. Quarterly sales were about 4 billion euros and the unit
made an operating margin of 13 to 15 percent, against earlier
margin guidance of 4 to 12 percent. Nokia’s margin measures do
not conform to IFRS standards.
- Nokia is among Europe’s most shorted companies. About 18.7
percent of the company’s Helsinki-quoted shares were on loan as
of Jan. 15, according to Markit. Data from Finland’s market
regulator shows that Blue Ridge, Coatue, DE Shaw, Discovery,
Lone Pine, Maverick, Soroban, TPG-Axon, and Viking Global are
among hedge funds betting on a decline in the price of the
company’s shares, as are Bain Capital’s Brookside unit and an
entity called Fest NV.
- Nokia statement: link.reuters.com/pam35t
- Reuters: Lumia sales lift Nokia results and turnaround
- Reuters: Nokia's results breakthrough buys it time and
Upwardly mobile [ID:nL4E8IJ3LY]
Difficult calls [ID:nL3E8HE5DG]
Not so smart [ID:nL3E8FBAI0]
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click on [WEBB/]
(Editing by Chris Hughes and David Evans)
Keywords: BREAKINGVIEWS NOKIA/
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