Nokia - End Demand Still in Question; Wireless Update
• We are re-iterating our cautious view on the wireless sector following a strong run-up in
share prices (nearly 100% run-up since September lows for both Nokia and Ericsson)
and data points suggesting that handset demand will remain weak through the first
quarter of 2002.
• We have heard from Linda Mutchler’s group that US wireless subscriber growth was
weaker than expected in December, causing a revision to their 2001 net addition
estimate to 20mn from 22mn. Linda’s group has also cut their 2002 net addition estimate
to 18mn from 21mn, believing that US subscriber growth will continue to slow.
• We have also heard from various wireless handset component suppliers that bookings
for Q1 have generally been weak, although Q4 2001 appears to be on-track.
• Currently, we believe that between 105mn and 110mn units will be shipped in the fourth
quarter (down 16% YOY and +20% sequentially) and that around 90mn will be shipped
in Q1 2002 (-4% YOY and down 18% sequentially).
• To remind you, we expect global shipments to come in at around 390mn in 2001 and
410mn in 2002, which compares to consensus estimates of around 390mn and 440mn
respectively.
• We have heard that component pricing pressure is beginning to accelerate (down 15% to
20% for some passive components), which could help to offset lower end demand,
helping margins to remain healthy.
• We therefore have no change in earnings estimates for Nokia, noting that we are already
one of the lowest on the street for 2002 full year (EUR0.66 vs. IBIS estimate of around
EUR0.78). We are looking for EUR0.20 for Nokia’s fourth quarter (in-line with
consensus) and around EUR0.15 for 2002 Q1 (vs. consensus of around EUR0.16 and
2001 Q1 EPS of EUR0.22).
• We believe that the next data points to be looking at will be wireless handset retail sales
numbers coming from US and European markets, as well as earnings releases from both
component suppliers as well as OEMs in mid to late January (Motorola on January 22nd,
Nokia on the 24th and Ericsson on the 25th). We maintain our Neutral opinion on Nokia.
(A. Ahmad/A. Shutze/P. Dionisio) |
