Ramsey: That post causes me to adopt a bit of the chicken little approach. I well remember being cautioned about selling MOT, so far so good but is this the hint to return? With the rumors that you are enjoying baseball, golf etc it does make one a bit nervous.
A report on NOK FWIW. Note many positive references to CDMA and NOK.
NOK: HANDSET BUSINESS CONTINUES TO BE VERY STRONG DESPITE NEW
PRODUCTS FROM COMPETITORS. 6/24/99 - Prudential Securities-Equity Luke
T. Szymczak
Ticker symbols referenced in this document: NOK, MOT, ERICY, PCS
NOK: HANDSET BUSINESS CONTINUES TO BE VERY STRONG DESPITE NEW PRODUCTS
FROM COMPETITORS.
R E S E A R C H N O T E S June 24, 1999
Subject: Nokia Oy (NOK--86 3/16)--NYSE
TELECM EQUIP
OPINION
Current: STRONG BUY
Analysts: Luke T. Szymczak (212) 778-4789 Prior:
Wendy M. Liu (212) 778-1522 Risk: HIGH
12-Month Target Price: $100
---------------------------------------------------------------------------
Ind. Div.: $0.52 Yield: 0.6% Shares: 1182.9 mil. 52-Wk.Range: 91-29
---------------------------------------------------------------------------
EPS FY Year P/E 1Q 2Q 3Q 4Q
Actual 12/98 $ 1.61A 53.5X $0.24A $0.34A $0.46A $0.59A
Current 12/99 $ 1.95E 44.2X $0.46A $0.45E $0.47E $0.55E
Current 12/00 $ 2.35E 36.7X $0.53E $0.58E $0.56E $0.68E
Estimates based on a Euro/US$ rate of 0.945 for 1999 and 2000.
---------------------------------------------------------------------------
* Our checks suggest very strong demand for Nokia's handsets in the June
quarter, and we expect that this should be enough to more than offset
weakness in infrastructure sales growth related to sluggish Chinese sales.
Current expectations appear to call for a stronger 2H1999 in China.
* The transition in the 6100 family from the 6110 single-band GSM phone to
the 6150 dual-band GSM phone appears to be smooth. Our checks suggest the
mix shift from 6110 to 6150 may slow the sequential ASP decline of the 6100
family.
* New CDMA products are contributing modestly at the end of the quarter,
and as we expected, the reception for Nokia's new CDMA phones appears to be
strong, which bodes well for Q3 and beyond.
* Handset demand in Asia and China appears to be strong. Likewise, demand
in Latin America seems to be ahead of expectations. We believe Europe and
the U.S. remain solid as well.
---------------------------------------------------------------------------
Nokia appears to be headed toward another strong finish in its handset
business this quarter. Our channel checks (details below) suggest that
handset demand remains robust, and we believe that the strength in handsets
should be enough to offset any softness as a result of a lull in wireless
infrastructure sales in China. We think that Nokia should be able to
exceed our EPS estimate of 0.43 (Euros) based on sales of 4.23 billion
Euros thanks to robust handset sales. However, the US Dollar has
strengthened since the March quarter, and the present exchange rate (0.9671
EUR/USD) shaves about a penny from US Dollar EPS relative to the 0.945
exchange rate we used to generate estimates in April.
We expect that handset growth can compensate for what appears to be
sluggishness in infrastructure sales in China. Precisely what the issues
are in China is unclear, but the net result has been sluggish
infrastructure sales since early this year. We suspect that China Unicom's
plans for CDMA deployment, along with the political issues that China
Telecom has faced for several months now may be having an impact on GSM
infrastructure demand. However, our sense is that the GSM networks in
China are in need of more capacity given healthy subscriber growth, and
vendors seem to be hopeful that first half weakness can be offset by a
strong second half. In the case of Nokia, infrastructure accounts for only
32% of our current revenue estimate (and less if handset sales surpass our
expectations), and we believe GSM infrastructure sales in China represent
only a small part of this, although China is admittedly a key growth
engine. The net result, we believe is that Nokia's infrastructure business
is likely to grow at the lower-end of the 25% to 35% growth target range.
June quarter results should benefit from the transition to dual-band GSM
handsets. The transition from single-band GSM (the 6110) to dual-band (the
6150) is underway at full swing in most major markets. In those markets in
which it is taking place, we believe this transition is helping to keep
ASPs on the 6100 GSM family relatively stable with last quarter, which is
favourable for revenues given ongoing volume increases. In some countries
Nokia is shifting the 6110 slightly downmarket to a lower price point, and
in others it is being phased out all together in favour of the dual-band
6150. The 6150 may at some point be impacted by Ericsson's new dual-band
T18, but so far volumes of the T18 are too low to reach a conclusion.
Low-end and high-end products are contributing as well. The high-end 8810
continues to be a niche product, with high pricing (around $600) and cache.
We do not think this is a major contributor to sales given what appear to
be much lower volumes than the 6100 and 5100 families, although this is
favourable to profit margins. The 8810 seems to be popular in China, but
is less so in markets where dual-band is becoming a requirement. The new
dual-band 8850 should address this when it begins shipping in Q4. We
believe the 5100 GSM family continues to perform well at the low-end of
the market, although declining pricing (in our view reflecting the lack of
dual-band capability) is likely to offset some of the volume increases.
New CDMA products should be modestly incremental in the June quarter, and
TDMA seems to be growing, despite the notoriously poor quality of AT&T's
network. The CDMA products seem to off to a good start, with demand
outstripping supply in the early weeks of shipment. Sprint PCS is now
selling the 6185 and should start selling the 5170 shortly. We believe the
demand for TDMA phones has held up well despite the unacceptably poor
quality of the AT&T Wireless network, the largest U.S. TDMA operator.
Limited competition in TDMA phones and a stronger-than-expected recovery
in Latin American demand are likely responsible for the growth.
Asia and Latin America appear to be on the comeback, while the U.S. and
Europe remain healthy. Most notably, handset demand in China seems to be
robust, and thanks to its strong lineup, Nokia appears to be taking share
from Ericsson, which has yet to launch its new line-up in China, and to a
lesser degree Motorola. Other markets in Asia appear to be growing as
well. In Latin America, Nokia has begun selling CDMA phones. In addition,
production in the new Brazilian factory is underway and Latin American
demand seems to have come back faster than expected. In Europe, Nokia
seems to be faring well despite a good ramp for Motorola's new V-series
StarTAC.
Our checks suggest that Nokia's new handsets should be positive for the
September quarter. The 3210 and 7110 GSM models should begin shipping, and
together with the 6150, the bulk of Nokia's products will be dual-band
capable. This product lineup should put Nokia on par with Motorola in the
transition to dual-band, and a little ahead of Ericsson due to its later
ramp of new products. In the Americas, we expect a full quarter of CDMA
shipments, virtually all of which should be incremental sales contribution
to Nokia.
Companies Mentioned:
Motorola (MOT-91 1/2; rated Accumulate)
Ericsson (ERICY-32 1/2; not rated)
Sprint PCS (PCS-58 3/16; rated Hold by Chris Larsen)
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may not be cleared for sale in all states. See BLUE on ERA.
(c)Prudential Securities Incorporated, 1999, all rights reserved. One
Seaport Plaza, New York, NY 10292 Information contained herein is based on
data obtained from recognized statistical services, issuer reports or
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