Nokia: Is it a Sensible Recovery Play?
Sisu Man,
<< Nokia's shares are currently in the tank due to being viewed as high-risk - too much competition at low, medium and high product ranges, pressuring margins; drop-off in overall world cell phone market Nokia's slowness in coming out with competitive smart phone and touch phone products; and uncertainty about whether Nokia's new direction in solutions emphasis will really work. Having spent a considerable amount of time in corporate strategic planning in my past life, my response is to offer up three brief scenario options that could happen through 2009, 2010 and 2011. I've also noted some Measurement checkpoints for future consideration. Comments? Other views? >>
That was a Good post. Modeling 3 scenarios for Nokia decline or turnaround in the upcoming 2½ calendar and 2 fiscal years is a sound approach, and you've certainly flagged some appropriate talking points that are on investors and analysts minds.
I'll make a few (perhaps too many) general comments and will most likely link back to your post with some more specific comments at a later date.
Nokia's shares are definitely tanked, and their earnings multiple is a reflection of that. As an industry bellwether its also a reflection of sector sentiment. There is a potential upside to that. Nokia and its NOK/NOK1V shares can be viewed as a potential recovery play and/or a value play. As a hard hit industry recovers, Nokia can recover with it, provided they can maintain their dominant position across price tiers in mobile devices, and in the growing smartphone segment of the industry. Margins are key, but unit share, revenue share, profit share, and value share are in play.
Past performance is certainly no guarantee of future success, but Nokia has been through industry recessions before and has emerged the better for it each time. The same holds true for their recovery from strategic miscues that manifested themselves in H1 2004 before the global recession and its industry impact sent them tumbling again in 2008.
I'll hopefully start by abstracting and posting a very good historical and projected handset and internet device model by Barclays Capital with Gartner inputs that was published by Barclays on June 12. The model stretches back to 2001 and out through 2012 and it breaks down total handset units and share (with projected growth) into smartphones and others, and adds notebooks and netbooks. Its the best such model I've seen to date and I think its relatively realistic. Until I see better, I'm adopting it.
At some point I'll probably add an overview of the Symbian migration path in progress from Symbian/S60 to the Symbian Foundation's open-source Symbian^x which starts with Symbian^2 (integrating the OS and applications middleware/UIs: S60/and features of MOAP and UIQ)) and on through Symbian Symbian^3, and Symbian^4 which all exist on SF's roadmap, and which are due at 6 month intervals after initial release.
Then we should take a look at Ovi's evolution. The pieces appear to finally be coming together rather nicely although its still a WIP. This portal with its underlying software and services solutions is absolutely key to turning on the value tap.
We also need to take realistic stock of Nokia's (4) Tier 1 traditional handset competitors, and the (3) primary up and comers challenging them in smartphone space and confining themselves to that space and its high end at the moment. Forex can't be ignored in that exercise because Samsung & LG are riding the strong weak Won tailwind -- a wind that could start blowing in another direction at any moment.
Your 1st listed checkpoint is (rightly) Nokia World on September 2 & 3. I'm not necessarily expecting it to create a lot of buzz, and I don't expect to necessarily see the launch of hero products -- although I do expect to see their newest maemo Linux MID ('Rover' ) with OMAP3 processor launched there. I do think Nokia will start to "pull back the kimono slowly" on its Symbian smartphone and maemo Linux plans, strategies, and roadmaps marking the start of a new wave of "rolling thunder" that will build through the fall and peak (temporarily) at GSMA's Mobile World Congress (February 15-18) in Barcelona and CTIA Wireless (March 23-25), in Las Vegas.
Preceding Barcelona, the key event after Cap Market Days in December will be Q4/FY2009 Earnings in late January. Traditionally Nokia out-executes its competition in (a reasonably normal) Q4 which Q4 2008 was not. The product range needs to be right. Right now it looks pretty decent to me across all price tiers. That's not to say it couldn't be better, and it would be nice to see a few new upper mid-range or lower high end smartphone product introduced between Stuttgart and Q3 end with Q4 ramps targeted.
Nokia does face a short term hurdle that it needs to clear one way or t'other, and it should be flagged. As a negotiating tool in seeking an IPR license for Nokia's 3G products, InterDigital is seeking an injunction in the ITC banning import of Nokia's 3G products into the US. The ITC will issue a preliminary determination in August and a final determination in December.
Those be my initial thoughts and comments. More to follow (sometime).
Best,
- Eric - |
