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Lumia smartphones seen powering Nokia to a healthy quarter

Lumia smartphones seen powering Nokia to a healthy quarter

Updated: 15 April 2013 19:51 IST

Nokia's push to expand sales of its Lumia smartphones in new markets such as China should help shrink an overall revenue decline and reduce its first-quarter loss, easing some of the pressure on CEO Stephen Elop.

Quarterly results on Thursday are also expected to show a turnaround at communications equipment venture Nokia Siemens Networks (NSN) , bolstering Nokia's bottom line and supporting the shares' recovery from last year's record low.

While analysts say Nokia has yet to prove it can survive in an industry increasingly dominated by Samsung and Apple, a slow but steady improvement in finances may buy more time for Canadian chief executive Elop as he attempts to implement his turnaround strategy.

Nokia is pinning its hopes on Lumia phones, which use Microsoft's Windows software. Since signing a deal late last year to sell Lumias in China, it has launched cheaper versions of the smartphone to cater to a global market of price-conscious but tech-savvy consumers.

While Nokia recently launched 15-euro phones to shore up its position in basic handsets, its long-term success is seen as hinging on smartphones, both due to their higher margins and because more consumers, including those in emerging markets, are demanding access to apps like Twitter from their phones.

"Its visibility is really poor, and of course there's still a possibility that the Windows strategy will fail. We don't know," said Michael Schroder at Finnish investment group FIM.

"But the base case assumption now is that volumes will gradually come up as the geographical coverage distribution gets wider and product portfolio moves towards lower price points."

While that is hardly a bullish endorsement, it underscores a shift in the market's view of the Finnish mobile phone marker, which a few quarters ago was under pressure to drop its Windows Phone strategy, as well as its CEO, if sales failed to pick up.

Analysts on average forecast first-quarter net sales to fall 11.8 percent from a year earlier to 6.48 billion euros, according to a Reuters poll, a more moderate decline than the 19.6 percent drop reported in the previous quarter.

Quarterly shipments of Lumia phones are seen at 5.6 million units, up from 4.4 million in the fourth quarter.

NSN gains strength
Nokia's underlying loss, which excludes special items, is seen shrinking to 0.04 euros per share from 0.08 euros per share a year earlier.

Another key factor behind the recovery is NSN. Once a cash drain for co-parents Nokia and Siemens, NSN is now profitable thanks to massive restructuring.

While it still faces tough competition from global rivals such as Huawei and Ericsson, sales have picked up with its focus on fourth-generation (4G) Long Term Evolution (LTE) networks paying off.

The turnaround has also raised hopes that NSN may be ready to be sold or publicly listed soon. The co-parents' agreement over the venture lapsed earlier this month, freeing both parties to sell their stakes without consulting each other.

Nokia is seen as being in no hurry to sell its stake, given that the unit is bringing in cash. The company's net cash position was 4.4 billion euros at the end of 2012, and is expected to have fallen to 3.7 billion by end-March.

"We partly see it as the most valuable operating unit," said Nordea analyst Sami Sarkamies of NSN. "But I don't think Nokia is in any rush for the time being. They may actually be quite happy waiting, and maybe an IPO next year is more something Nokia is interested in."

With the possibility of a deal on the horizon, stronger-than-expected results from NSN could boost the market's valuation of Nokia.

The shares traded on Monday around 2.63 euros - nearly double their lifetime low of 1.33 euros marked in 2012 but still lower than the 4-5 euros many analysts see as the value of the company's "sum of parts" including its handset business, Navteq mapping unit and stake in NSN.

FIM's Schroder has a target of 4.00 euros on the shares. "When looking at sum of parts it's significantly higher. But of course you have to have a discount, with all the uncertainty," he said.

Copyright Thomson Reuters 2013

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