SoundView's Matt Hoffman on Nokia Q1 2002:
Nokia Analysis of Sales/Earnings: Misjudged Expectations
research.soundview.com
Rating: Strong Buy (but some cautious comments).
"We had some level of optimism going into the report that Nokia would maintain their handset outlook for the year but it looks as though the targets the company had set for the year were simply too high.
Nokia remains the top-performing company in the space".
We are cutting our 2002 and 2003 revenue estimates for the company on the company's lowered guidance, but we are maintaining our 2002 EPS estimates.
Details by Segment:
Nokia Networks
Pro forma results were sales of EUR 1,436 million with an operating profit of EUR 146 million. We were modeling revenue of EUR 1,452 million and operating profit of EUR 148 million. Operating margins were in line with our 10.2% estimate. As we had expected, Nokia lowered the bar on infrastructure, and the company is now saying they will grow at 0%-5%, down from 15% growth.
Nokia Mobile Phones
Pro forma results were sales of EUR 5,438 million and operating profit of EUR 1,208 million. We had modeled revenue of EUR 5,665 million and operating profit of EUR 1,092 million. Operating margins were a healthy 22.2% vs. our modeled 19.3%. Surprising us, Nokia lowered the outlook for the year in this unit even though the normally bullish prospect of new product launches is unusually high this quarter. Further confusing the situation is the company's statement that 1Q02 handset market was in line with company expectations.
Nokia Ventures
Ventures came in at EUR 157 million compared to our estimate of EUR 127 million, up slightly from last quarter's EUR 142 million. Operating loss was EUR 30 million, better than our EUR 57 million loss expectations.
Balance Sheet
Nokia's cash and short-term investments were up from EUR 1,854 million to EUR 1,875 million last quarter. Inventories were up 4.8% from EUR 1,788 million to EUR 1,873 million.
2002 Industry Forecasts Cut
Despite indicating that they believe the handset industry performed about as expected in 1Q02 (which we believe is approximately 91 million units sold through), the company surprisingly opted to take down its handset forecast to 400 million to 420 million on what it perceives as weakness in all regions. In infrastructure, Nokia is now adopting the view of its peers that the worldwide infrastructure market will decline in 2002. The company now forecasts its infrastructure business to be flat to up 5% versus its prior forecast of 15% growth.
Lowering Guidance
Nokia is lowering guidance for the full year in both handsets and infrastructure. The company now expects mobile phones to be up 5%-10%, and infrastructure to be flat to up 5%, compared to prior guidance of 15% growth for both. This leaves total company revenue up 4%-9% for the year compared to 15%. We were modeling 10% growth. The outlook for profitability remains unchanged with mobile phone margins around 20% for 2002 and infrastructure margins stable at current levels (approximately 10%). EPS guidance for the year is EUR 0.83, which is in line with our estimate and consensus. For the June quarter, the company is calling for y/y growth of 2%-7%, with mobile phones up 5%-10% and infrastructure down 5%-10% y/y. <<
- Eric - |
