BUY OR SELL-New Nokia smartphone no game changer

Wed Dec 21, 2011 7:29am EST

* Shares down 22 pct since Lumia launch

* 14 analysts say buy, 15 sell, 21 neutral

* 2012, 2013 EPS, dividends to miss consensus -Starmine

By Tarmo Virki, European Technology Correspondent

HELSINKI, Dec 21 (Reuters) - Nokia's long-awaited Windows phones may be too little, too late in the smartphone war and investment in the shares will increasingly be driven by takeover speculation.

Its first Windows model, the Lumia 800, won some positive reviews but little interest from consumers, with only 2 percent of Europeans in the market for a smartphone saying they would pick it, according to a survey by Exane BNP Paribas.

"This is not a game changer," a senior European telecom executive told Reuters of the Lumia, which uses Microsoft software.

Nokia's shares have fallen over 20 percent since the October 26 launch of the new phone, after investors decided it was unlikely to make a significant dent in a market still dominated by Apple and Google.

Smartphones using Microsoft software have just a 2 percent market share, compared with Google Android at around 50 percent and Apple at 15-20 percent.

"There isn't much room left for a third ecosystem. The smartphone market is consolidating fast," said Bernstein analyst Pierre Ferragu who rates Nokia a "sell".

Smartphones are built on mobile computing platforms, and the most modern combine web browsers, navigation systems, cameras and portable music systems. A so-called "feature" phone -- a market Nokia dominates -- has far fewer of these applications.

Microsoft itself has started to hedge its bets, making its software increasingly available for rivals to Windows Phone.

Even Nokia's old Symbian software, which it decided to dump in favour of Microsoft, still outsells Windows Phones by 10 to 1. And as Nokia keeps shifting to Windows, sales of Symbian have a lot of room to disappoint over coming quarters.

UPSIDE, DOWNSIDE

Another risk for Nokia investors is the possibility it will slash its dividend early next year.

Estimates from Thomson Reuters Starmine, which give more weight to analysts with a better forecasting track record, show dividends are expected to fall 60 percent from a year ago to just 16 euro cents for 2011, with the payout seen at 17 cents for 2012.

Forecasts from Starmine also indicate earnings per share in 2012 and 2013 are set to disappoint. Its EPS estimates for both years stand 12 percent below consensus forecasts.

Some analysts are keeping the faith, however, believing the new assault on the smartphone market may be enough to give Nokia a place at the table. If they are wrong, the attractions of the handset maker's strong cash position and some prized patent assets could yield a takeover bonus.

The shares, recently trading at around 3.65 euros, also look cheap to some. Many analysts cite an improvement in Nokia's product portfolio, which looked out of date when Stephen Elop took over as the chief executive in September 2010.

"With current, and upcoming models, Nokia can win back market share in both -- in feature phones and in smartphones," said Swedbank analyst Jari Honko, who has a "buy" recommendation on the stock. "Today's share price does not take into account any recovery in the Nokia market position."

And while some argue there is no room for a third alternative to Google and Apple, some developers and operators do see room for more competitors in this market.

The 2012 Windows 8 upgrade could attract a wider audience by giving making the way smartphones, tablets and PCs work more similar.

For investors, the biggest positive surprise could be an acquisition offer. After Nokia signed a deal with Microsoft, rumours of full takeover by Microsoft or at least buyout of smartphone unit have made rounds on a weekly basis.

Last week the stock jumped 4 percent when Danske Bank suggested Microsoft could buy Nokia's smartphone unit.

But even if investors don't get a rich buyout - online gambling company Unibet is putting odds on Microsoft buying Nokia in 2012 at just 15:1 - analysts say the company's relatively-solid finances should at least offer some security.

Nokia had 1.36 euros per share of cash at the end of the last quarter. It also has a strong patent portfolio - on its own worth more than a euro per share - and owns top digital mapping firm Navteq and half of No 2 mobile network gear maker Nokia Siemens Networks.

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Comments (4)
tree1234 wrote:
this is pure BS, the same lying analyst get quoted many times for the same BS under so many different title. 0 substance.

Dec 21, 2011 8:20am EST  --  Report as abuse
John_Ash wrote:
My following comment has been censored. I wonder why?
Mr.Virki and Mr.Farragu are well known wannabe game changers against Nokia. I’d rather see Nokia’s numbers for Q4/2011 and Q1-2/2012 before letting out the kind of announcements these gentlemen are now giving. I’d also want to consult a well informed analyst.

Dec 21, 2011 10:01am EST  --  Report as abuse
dblagent wrote:
How you continue and believe Bernstein analyst Pierre Ferragu anymore?

He said buy HTC and after two days HTC reported negative information about their result. Stock goes down and people just bought huge amount of HTC shares because of Pierre Ferragu analysts.

Then case RIM – Pierre said buy and people buy. Next day RIM informed negative results …

Pierre also said Nokia this and that … check it from Google Trends! Why just Google Trends, why not from Nokia Trends, Apple Trends or Samsung Trends … yes, because it is only Google Trends is available. Who believes Google after it is Nokia’s biggest competitor in Mobile Markets. If Google not be active … it will be late later when Nokia Lumia is in the world wide markets and people can take Lumia to their hands and test how well it works, how easy it is handle, how beautiful is its design etc. etc. Of course … Google do everything what it can against to Nokia and it will do it and it use as much money that it is needed to use for this fight. This is war and you know … Google is a pioneer in the war inside WWW and the Mobile War are battles in WWW, today.

So – should I believe Pierre once more (ok – I didn’t believe earlier too ;) ) or should I think, if I’m opposite of Pierre, I’ll win, win and win again !!!

Dec 21, 2011 2:19pm EST  --  Report as abuse
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