Nokia Rockets Skyward

Following a rally that had already seen Nokia (NYSE: NOK  ) rocket 130% over its 52-week lows, the company is surging this morning, adding 15% as of 10 a.m. EST.

The cause is a preannouncement of next quarter's earnings that was better than expected. Two areas are especially notable. For one, Nokia has shipped 4.4 million Lumia phones. The other area is that the company's Nokia Siemens Networks unit continues outpacing competitors like Alcatel-Lucent (NYSE: ALU  ) , which itself had to seek new financing from Goldman Sachs amid continuing poor cash flow . Last quarter, Nokia Siemens pushed its adjusted operating margins in that segment up to between 13%-15%. That beats the company's previous outlook of operating margins of 8% in the unit, plus or minus four percentage points.

Last time Nokia reported earnings, I noted how the strength of Nokia Siemens had become a surprising area of outperformance for the company. Nokia Siemens' competitors have been burning cash in a very difficult telecom spending environment. As Nokia tries turning its mobile phone business around, it can use all the cash it can get, so seeing Nokia Siemens performing so admirably has turned a potential weakness into a strength. Next quarter Nokia Siemens is estimating operating margins will retreat back to approximately 3%, but the unit has also strongly outperformed expectations the past two quarters, so we'll see where that winds up.

Moving on to Lumia: 4.4 million units is still small potatoes in a smartphone market that looks poised to cross 200 million sales in the fourth quarter. Yet, reactions to earnings is all about expectations, and Nokia appears to have surpassed expectations. The phone had strong partnerships across the globe, with AT&T (NYSE: T  ) pushing the Lumia 920 as a high-end competitor to Apple's (NASDAQ: AAPL  ) iPhone 5. Surveys indicated the Lumia was the third-best-selling phone on AT&T's networks in early December. Not only that, but the Lumia series got a big push from China Mobile  (NYSE: CHL  ) on its network as (once again) counter-programming to the iPhone, a phone which China Mobile still isn't selling.

The point here is that Lumias have received strong promotion away from Nokia's traditional strength in European markets. That promotion helped Nokia exceed expectations last quarter.

4.4 million Lumias must still be put in context of expectations running just south of 50 million iPhones and the possibility of 150 million Android units being sold in the fourth quarter. Is that enough momentum for Nokia to begin making its comeback? Today investors are voting "yes," but it's important to remember the continuing challenges facing the company.

Nokia's been struggling in a world of Apple and Android smartphone dominance. However, the company has banked its future on its next generation of Windows smartphones. Motley Fool analyst Charly Travers has created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if the company is a buy or sell. To get started, simply click here now.


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  • Report this Comment On January 10, 2013, at 10:33 AM, AbigailLindberg wrote:

    At this price, NOK is extremely undervalued.

    Morningstar´s analysis about Nokia:

    Estimated price: intellectual properties over 1 euro per share (Motorola´s patent portfolio was worth about $5.5 billion); other business parts (smartphones, featurephones, NSN) at least over 1.50 euro per share.

    And NAVTEQ´s price not included (Nokia bought NAVTEQ with 5.7 billion euro). All in all, even in this case, Nokia share price would be at least over 2.50 euro, excluded NAVTEQ! And Nokia´s net cash is now 3.6 billion euros.

    In other words, the sum of parts of Nokia and net cash are worth much more than its market cap now, which means NOK share is right now heavily undervalued.

    Nokia Is Extremely Cheap

    The company has since partially offset these fears with excellent cash management, restructuring aimed at reducing costs, and more recently, its better than expected 3rd quarter results. The company achieved operational profitability (1.1% non-IFRS) with better than expected revenues, triggering a 20% increase in stock price. As the table below shows, these factors have enabled Nokia to maintain a healthy interest coverage ratio and quick ratio (nearly equal to the industry average), dispensing any immediate liquidity concerns.

    Company

    Industry

    Sector

    Quick Ratio (MRQ)

    1.16

    1.62

    1.64

    Current Ratio (MRQ)

    1.28

    1.96

    3.01

    LT Debt to Equity (MRQ)

    48.76

    22.29

    10.61

    Total Debt to Equity (MRQ)

    66.45

    39.67

    19.69

    Interest Coverage (TTM)

    4.9

    4.91

    164.78

    Figure 1: Financial Strength/ Reuters

    Valuation

    Nokia is currently operating at a loss and the sell side expects the company to become profitable, somewhere in 2014. The stock is very volatile, as can be assessed from the 100% run in the last 6 months. I believe Nokia’s share price will continue to fluctuate with short term catalysts and it’s still pointless to value the stock on 2014 earnings given the uncertainty. Instead, investors should value the company on a worst case scenario. I believe at this point, Nokia’s biggest assets are its impressive patent portfolio, Cash, NSN and Navtaq.

    I have used three recent patent sales to get an approximate value per share for Nokia’s current patent portfolio.

    $ millions

    AOL (AOL) Patent Sale

    Vringo (VRNG) Purchase

    Nortel Networks

    No. of Patents Sold

    800

    500

    6000

    Sales Value

    1100

    22

    4500

    Price Paid Per Patent

    1.4

    0.0

    0.8

    No Nokia Patents

    9500

    9500

    9500

    Patent Portfolio Value

    13063

    418

    7125

    Shares Outstanding

    3830

    3830

    3830

    Per Share ($)

    3.4

    0.1

    1.9

    Average Price Per Patent

    0.79

    Average Patent Portfolio Value

    7316

    Average Per Share Value ($)

    1.91

    Figure 2: NOK Source: Google Finance

    As the calculations show, the patent value per share of Nokia’s patents comes down to $1.91 per share. According to Nokia’s disclosures, the company ended Q3 with gross cash of $11.5 billion (EUR 8.8 billion). The Q3 results also indicated that Nokia had EUR 288 in currently maturing debt and EUR 1.1 billion in short term borrowing. Deducting other liabilities, we arrive at a net cash position of $4.7 billion (EUR 3.6 billion). This comes down to a per share amount of $1.22, and adding the per share patent value of $1.91, the value of cash and patents together is $3.13.

    Bottom Line

    Nokia still trades way below its salvage value. The company’s patents and net cash, alone are worth $3.13 per share. This of course does not include Nokia’s Navtaq business and NSN (Nokia Siemens Network). These divisions continue to be profitable, despite problems of Nokia’s smartphone division. In Q3 NSN sales were EUR 3.5 billion and operating profit was EUR 323 million; the operating profit of location and commerce segment was EUR 37 million. The combined value of Navtaq (3x sales for $3 billion) and NSN (0.5x sales for $7 billion) is around $10 billion ($2.6 per share). This gives us an approximate per share value of $5 for NOK. Therefore, Nokia is still trading at a discount to its salvage value and is an excellent value opportunity.

    Usually, NYSE tech stocks are at least 2X valuated value. In this case, NOK share price should be at least around $10.

    NOK is so cheap, because the stock has been over sold.

    Nokia is the most short sold stock in both Helsinki and New York!

    NOK short interest:

    NYSE November 30

    295,118,232 shares

    Helsinki December 6

    10.7% (with investors over 0.5%, below 0.5% not listed)

    Nokia´s total share number (approximately 3.75 billion shares) covers both New York and Helsinki.

    That makes the sort interest in NOK around 20%!

    Nokia is a good candidate for a big short squeeze!

    Important to note:

    Usually, NYSE tech stocks are at least 2X valuated value. In this case, NOK share price should be at least around $10.

  • Report this Comment On January 10, 2013, at 10:34 AM, AbigailLindberg wrote:

    Nokia, which has come down more than 90% from its highest, is really worth consideration.

  • Report this Comment On January 10, 2013, at 10:35 AM, AbigailLindberg wrote:

    Nokia is a very good candidate for a big short squeeze.

    Because the stock has been over sold.

    Nokia is the most short sold stock in both Helsinki and New York!

    NOK short interest as of December 2012:

    NYSE

    281 million shares

    Helsinki

    11.38% (with investors over 0.5%, below 0.5% not listed because of EU rules).

    Nokia´s total share number (approximately 3.75 billion shares) covers both New York and Helsinki.

    That makes the sort interest in NOK around 20%!

  • Report this Comment On January 10, 2013, at 10:36 AM, AbigailLindberg wrote:

    Nokia did announce a couple of months ago (when asked why it bought Norway´s Smarterphone but has not used the OS) that Nokia bought Smarterphone because of the company´s expertise, in order to develop Nokia´s feature phones which are going to be kind of half smartphones right now, e.g. the newest Asha 205 and Asha 206, in which there are features like Facebook, Twitter etc and internet access to thousands of Nokia´s most popular apps.

    Either Nokia has integrated Smarterphone into S40, we don´t know, but the fact is Nokia´s feature phones have become really smarter!

    Apart from the features I mentioned above in the new Asha phones,

    Nokia has already brought an app called Nearby (which is almost the same as Lumia´s City Lens) into Asha phone line!

    In addition to all these, Nokia has 40 most popular games of the world in these Asha phones for free. And Asha 205, 206 is only $60 without any contract at all. And Nokia´s Asha phones are profitable, that is one really important thing to keep in mind, because almost 2/3 of the world´s population is still using a featurephone!

    As Nokia has said, with these Asha phones Nokia is targeting the next billion people to reach internet. There is still a huge opportunity out there which even Android can not target (because cheapest android right now is above $100 and Asha is only $60), not to mention iOS!

    Asha phones have been profitable.

  • Report this Comment On January 10, 2013, at 10:36 AM, AbigailLindberg wrote:

    Nokia has a brighter future than RIM

    1) BB10 is a bit late!

    2) RIM has been strong in enterprise business, but now RIM will face

    more than tough competition. For example, In China China Mobile sells the Nokia Lumia 920T for 4599 yuan with free wireless charging pad or other accessories, which means the phone costs only 4000 yuan. The phone is very much cheaper than iPhone 5 or Galaxy Note 2.

    In addition, the Lumia 920T has premium malware virus protection hardware built in.

    Therefore, will RIM´s highest end BB10 phone able to compete the price with this Lumia 920T? I really doubt that. And with a 2-year contract, China Mobile offers the Lumia 920T with only 1 yuan!

    3) RIM´s loyal fans will still support BB10 phones, but will that be enough?

    4) Beside Apple and Samsung, RIM will have to compete also with Nokia.

    Now, Nokia with WP8 is in quite a big step ahead of RIM with BB10.

    Nokia has low price point Asha phones and also high-end Lumia phones,

    so can RIM do the same?

    5) RIM will still need to use a lot of money in R&D and marketing in the future, while Nokia

    is saving money in R&D and marketing, because MS shares the expenses.

  • Report this Comment On January 10, 2013, at 10:37 AM, AbigailLindberg wrote:

    Nokia´s Asha phones are competing with low-price androids. Asha phones have many smartphone features and thousands of Nokia´s most popular apps right now and also Facebook and Twitter etc, and even 40 most popular games in the world for free in these phones. Asha phones are only about $60 without any contract, while cheapest android is still about $100.

    Nokia is also saving money in R&D, because it has teamed up with Microsoft.

    Nokia is actually a BUY and hold for 2013.

    Reasons:

    1. China Mobile deal

    2. Nokia is now getting royalty payment also from RIM

    3. Lumia 920 is heading to more markets

    4. Budget WP8 phone Lumia 620 is hitting the markets this month

    5. Nokia is likely launching a tablet. I don´t expect much, but even some Nokia´s loyal fans around the world will buy some Nokia´s tablets, that is a good gain for Nokia.

    6. According to CEO Stephen Elop, Nokia is planning a lot of interesting things with Verizon!

  • Report this Comment On January 10, 2013, at 10:38 AM, AbigailLindberg wrote:

    Conclusion is, Nokia is to buy and hold it for long term or medium term

    Nokia´s current 3.6 billion euros net cash should be enough for Nokia´s transitional period before WP8 phones take off.

    Nokia is also getting more cash from convertible bonds and selling its headquarters and other non-core assets.

    1. Nokia Siemens Networks is profitable and growing strongly (over 300 million euros profit in 3Q). Nokia and Siemens have decided to make it independent in these few years, therefore Nokia shareholders will have two companies´ shares in their hands, quite a good bonus.

    2. Navteq is profitable as well, and it is expanding its business as the world´s leading maps maker, with City Lens and Earthmine´s 3D mapping, Nokia will have a bigger slice of this pie yet.

    Right now, Navteq already has big clients such as Yahoo, Facebook, Amazon, Mozila, Oracle and almost countless car companies. Navteq just reported it is building navigators into 4 out of 5 cars (80%), with the new cars with navigator built in.

    3. Nokia´s patent portfolio earns about 500 million euros a year.

    Samsung is paying Apple for intellectual property rights; HTC is paying Apple; Vringo is suing ZTE; Nokia is suing HTC; Ericsson is suing Samsung; and APPLE IS PAYING NOKIA FOR INTELLECTUAL PROPERTY RIGHTS!

    Thus, it is only a matter of time when Nokia will sue Google and Samsung, if they still don´t agree to pay Nokia for its patents.

    4. Nokia´s featurephone division is doing well, because of Asha phones.

    5. New Lumia generation looks promising.

    Lumia 920 has features like:

    Floating-lens PureView camera with optical image stabilization

    Wireless charging

    Super sensitive and bright screen that can be used with gloves or finger nails

    Premium GPS that can be used also without internet

    Augmented reality City Lens!

    Free music with no ads

    NFC

    Rich sound recording in vids

    Fastest screen on a smartphone!

    Wireless Purity Pro headphones

    Wireless speaker that can charge your phone wirelessly

    LTE

    Nokia also bought Scalado, the imaging technology firm in Sweden. Therefore, apart from NAVTEQ and NSN, Nokia is no doubt going big with PureView imaging technology. Some authors compare Nokia to Kodak, I think it is almost the opposite.

    Kodak was the old era and Nokia is starting the new evolution with smart-phone imaging, when consumers won´t have to carry another gadget (camera), for example during traveling.

    6. Considering now Nokia´s Devices & Services have come back to profit,

    Nokia´s current 3.6 billion euros net cash should be enough for Nokia´s transitional period before WP8 phones take off.

    Nokia is also getting more cash from convertible bonds and selling its headquarters and other non-core assets.

    Morningstar´s analysis about Nokia:

    Estimated price: intellectual properties over 1 euro per share; other business parts (smartphones, featurephones, NSN) at least over 1.50 euro per share.

    And NAVTEQ´s price not included (Nokia bought NAVTEQ with 5.7 billion euro). All in all, even in this case, Nokia share price would be at least over 2.50 euro, excluded NAVTEQ! And Nokia´s net cash is now 3.6 billion euros.

    In other words, the sum of parts of Nokia and net cash are worth much more than its market cap now, which means NOK share is right now heavily undervalued.

    7. Nokia´s 3.75 billion shares outstanding,

    covers both Helsinki and New York.

    In other words, the short interest in NOK has been around 20% (Helsinki + New York) on a base of 3.75 billion shares.

    This is a significant figure to note, because for example, shares of Apple have been short sold only about 0.5%, Samsung over 2% and other telecom companies about 4% in general.

    Therefore, the real short covering of NOK is still to come yet.

    8. Apart from Lumia 920 and 820 variants, Nokia has been pushing at the same time the sales of Lumias 510, 610, 710, 800 and 900 with campaigns and discounts.

    For example, Lumia 800 has gone back into top ten charts in many countries.

    Kantar reported that WP phones have reached 11.7% market share in Italy.

    The two hit phones are Lumia 610 and Lumia 800 there.

    Nokia launched Asha 205 and Asha 206.

    In these two new Asha phones, Nokia has a new innovation called “Slam” with which you can share photos and videos between the phones, and don´t have to even pair them up like NFC. Also Facebook etc and 40 most popular games in the world are in these phones, which make it hard for manufacturers to compete featurephones with Nokia.

    Nokia´s WP8 phones will be available in more markets, because they also support Arabic now.

    China Mobile (the world´s biggest carrier with about 700 million subscribers) has also confirmed Lumia 920T !

  • Report this Comment On January 10, 2013, at 10:38 AM, AbigailLindberg wrote:

    When now, both China Mobile and China Unicom are subsidizing the Lumia 920 heavily, the 2-year or 3-year contract is starting from

    0 or 1 yuan, and considering only less than 1/5 of Chinese people are using highest-end smartphones, now even middle class Chinese people have a chance to use a highest-end smartphone because of China Mobile´s and China Unicom´s Lumia 920 deals.

    This will result into a huge number of 2-year or 3-year contract users for Nokia in China! Besides, 3G penetration in China is still very low, there is a huge opportunity there.

    Additionally, among the highest end phones, Nokia Lumia 920 is significantly much cheaper than for example iPhone 5 and Galaxy Note II. Nokia has an advantage in both the price competition and the biggest carriers´ backing in China!

  • Report this Comment On January 10, 2013, at 10:38 AM, AbigailLindberg wrote:

    Chinese people know a Samsung or iPhone is made with only about $200 and sold to them with high price for almost $900. Instead, Nokia uses a lot more than that $200 to make a Lumia 920, and it is sold a lot less expensive than Samsung and Apple phone.

    In addition, Chinese people know Nokia is really famous with build quality.

  • Report this Comment On January 10, 2013, at 10:39 AM, AbigailLindberg wrote:

    Business men and women like the Lumia 920T in China, because of Office, good maps and location data City Lens and GPS, and good virus protection firmware built in the phone.

  • Report this Comment On January 10, 2013, at 10:39 AM, AbigailLindberg wrote:

    Awards Won By Nokia Lumia 920

    The Top Smartphone of 2012, V3, UK

    The Best Mobile Phone of 2012, Readers Choice Award, Gizmodo, Australia.

    iF Award for Outstanding Design, International Forum Design, Germany

    Mobil Award for Best Smartphone Design, Mobile Magazine, Denmark

    Best Smartphones of 2012, The Next Web, USA

    Top Score Award, Mobil, Sweden

    The Best High End Smartphones for the Holidays, CNET, USA

    Best Productivity Phone, Best Camera Phone, Best Mapping Phone, Best Windows Phone, Runner up, Arstechnic, USA

    Top 25 Tech of 2012, Mashable, USA

    Top Smartphone of the Year, Mybroadband, South Africa

    Best AT&T Smartphones of 2012, BGR, USA

    The Independent UK calls the Lumia 920 “probably the most innovative smartphone on the market”

    Lumia 920 and Lumia 620 will gain more smartphone market share in 1Q13, because the supply of Lumia 920 is now starting to get better. Many Lumia 920 pre-orderers especially in China are starting to receive their phone.

    Lumia 620 is hitting many markets already this month.

  • Report this Comment On January 10, 2013, at 10:47 AM, AbigailLindberg wrote:

    Nokia used to be over $40, now even with profit Nokia is only over $4. Think about it!

    Nokia has spent in R&D alone over $55 billion, now its market cap is only about $17 billion.

    NYSE tech stocks are on average about 2X book value, while Nokia is still much much below that!

  • Report this Comment On January 10, 2013, at 10:48 AM, ramaus wrote:

    "...a smartphone market that looks poised to cross 200 million sales in the fourth quarter"

    Is it evil, bias, or ignorance that limits you to only NOK Lumia sales? Reading the NOK press release we we can see NOK smartphone sales of 15.9M. Not just the 4.4M you report.

    If you wish to be a reporter, help the reader see an honest picture. Otherwise your writing is a waste.

  • Report this Comment On January 10, 2013, at 10:58 AM, ddeeds wrote:

    I must disclose that I previously worked for Nokia for 10 yrs. and Nokia Siemens for 9 months.

    I look at Nokia's current handsets as the Betamax of phones. Technically the best hardware specs. but still not enough buyers. And the competitors have already caught up at this years CES.

    The Helsingin Sanomat is reporting this morning that smartphone sales were actually expected to be 10 million. So these numbers are quite disappointing. I expect that after the early adopters, the Nokia employees, and the Microsoft employees are done buying then sales will drop.

    Kudos to the fine work done at NSN, but that group has been cutting costs beyond what is reasonable. The engineering group could not even order components to replace failed parts when I was there. And toward the end of last year, they stopped buying supplies such as coffee and paper towels. This might prop them up financially in the short term, but I can't imaging this will keep their employees happy and productive.

  • Report this Comment On January 10, 2013, at 11:10 AM, kthor wrote:

    just make me money NOK!

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