Can NOKIA LUMIA 900 Turnaround NOKIA (NOK) ?

Published on April 7, 2012

Can NOKIA LUMIA 900 Turnaround NOKIA (NOK) ?

April 7, 2012

Before I get in to reviewing whether NOKIA LUMIA 900 will mark a turn around for NOKIA or how is LUMIA 900 vs iPhone, a brief update on OP Income Newsletter performance-

As of Thursday April 5th close,  our OP Income Newsletter Apr 2012 portfolio is up +7.3% on the maximum investment of almost 73.5% of portfolio capital. This performance is excluding gains made on directional/speculative trades. Since Mar 15th, 73.5% of $10,000 portfolio was utilized across 9 different portfolios 4 of which are already closed. Benchmarking against SPY, we are still fairly delta neutral and are positioned to benefit from any sideways movement. Our VIX Income portfolio should gain, in case there is some pullback in broader markets. If you missed out on FREE trade ideas, pls stay in touch on Twitter @OptionPundit

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Tomorrow NOKIA (NOK) will have its, probably the biggest and most important, product launch in recent history. On April 8th, NOKIA will launch Lumia 900 in US and those who pre-ordered will get it anytime now. There are mixed reviews on the net and knowing that how mainstream now iPhone is (in smartphone category), the reviews in my opinion are not to bad which is actually a good thing for Nokia. Any lifestyle product is open for subjectivity so no one is really right or wrong. One of the most hyped issue is “lack of apps”.

Moving on to what lies ahead for NOKIA (NOK), Here is what I think about NOKIA Lumia 900 per-se-

  1. It’s has a winning design even though some say that it look like previous generations of iPod Nano etc. Personally, I liked the design (I have iOS, Androids as well).
  2. It’s priced $99 to break the entry cost barrier especially for the first timers.
  3. Nokia (NOK) not only needs to penetrate AAPL and Android user base but more importantly it needs to stop erosion in its own user-base who are a) not yet smartphone users or b) thinking of switching to other smartphones. And in my opinion it has potential to effectively serve the need.
  4. Specs wise, unless you are big on smartphone usage, this is a pretty fine machine.
  5. Apps story is like a chicken-and-egg, unless there is big following there won’t be much apps. Remember the beginning of Android? and who knew what is an app before it came into being. But that’s not the point, the point is to have those key apps that are used often and I am sure both Microsoft and Nokia knows it and that’s why they have started writing checks as well.

So all things aside, once you get a 10 on #1, it’s really number #3 that will matter most and when numbers are out, we’ll see how big or small was a deal. However, in the meanwhile, those are madly in love AAPL and see nothing but apple and know nothing about NOKIA, here is a historical price chart of both the companies, since 1997.

The objective of this chart is not to predict that AAPL is now at peak (and I don’t think that even after $500 billion marketcap it’s overly priced even on fundamental basis, but that’s for some other day) but to show that when AAPL was not known, NOKIA was big and used to sell at premium. Today, at $5billion free cash flow and roughly 5% dividen yield, NOK is priced at 1/2 of last years sales, 1.2x book value and roughly 13x forward earnings. If NOK could just stop the decline, that itself has potential to double the share price from current level. Will this change with Lumia’s launch? I think yes, but let’s wait for a few months to allow numbers do the talking.

What is your first reaction? what’s your gut-feel?

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Profitable Trading, OP

4 Comments

  • Avatar Chris Tancredo says:

    Not so bullish about NOK as you seem to be, the fundamentals are just not there as far as I’m concerned.

  • Avatar OptionPundit says:

    Chris, it’s good to have some conversation…how about sharing some reasons why you are concerned? from fundamentals perspective what is that’s troubling you?

  • Avatar OptionPundit says:

    Though it is too early to conclude anything, both versions on Lumia are the best sellers on Amazon cellphones with service plans.
    And even though US markets dropped sharply, NOK was positive (though not a lot).

    http://www.amazon.com/Best-Sellers-Cell-Phones-Accessories-Service-Plans/zgbs/wireless/2407747011/ref=zg_bs_nav_cps_1_cps

  • Avatar OptionPundit says:

    NOK Nokia followup: Lowers Q1 Devices & Services operating margin guidance, provides prelim sales; guides Q2 op. margin guidance (5.03 ) -Update-

    Nokia currently estimates that its non-IFRS Devices & Services operating margin in Q1 was approx. -3%, compared to the previously expected range of “around breakeven, ranging either above or below by ~2 percentage points” primarily due to Competitive industry dynamics, which negatively affected net sales in the Mobile Phones and Smart Devices business units, particularly in India, the Middle East and Africa and China; and gross margin declines, particularly in the Smart Devices business unit. Nokia currently estimates that Devices & Services net sales in Q1 were EUR 4.2 bln, comprised of Mobile Phones net sales of EUR 2.3 billion (71 million units), Smart Devices net sales of EUR 1.7 billion (12 million units), and Devices & Services Other net sales of EUR 0.2 billion. Based on the preliminary view, Nokia ended the first quarter 2012 around the high end of our normal 4 to 6 week channel inventory range, but on an absolute unit basis, channel inventories declined sequentially. In Q1, Nokia sold more than 2 million Lumia devices at an ASP of ~EUR 220. Furthermore, Nokia has seen sequential growth in Lumia device activations every month since starting sales of Lumia devices in November 2011. Lumia has gained market share with both distribution partners and consumers. The Windows Phone ecosystem is also attracting developers and has expanded rapidly with more than 80,000 applications available.

    Q2 outlook: Co expects its non-IFRS Devices & Services operating margin in Q2 to be similar to or below the first quarter 2012 level. This outlook reflects that the 1Q12 benefit related to lower warranty costs is expected to be non-recurring, as well as expectations regarding a number of factors including: – competitive industry dynamics continuing to negatively affect the Smart Devices and Mobile Phones business units; – timing, ramp-up, and consumer demand related to new products; and- the macroeconomic environment… Nokia will continue to increase its focus on accelerating Lumia sales, as well as on lowering the company’s cost structure, improving cash flow and maintaining a strong financial position.

    NOK is now -12.5% in the premarket.

    Read more: http://www.briefing.com/Platinum/InDepth/InPlay.htm#ixzz1rjZ27Y00

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