Well wasn't today just special. Sometimes I get too worked up and should just keep my fat keyboard shut. Anyway I reviewed the Q4 report and would appreciate your thoughts.
I do not believe AAPL paid anything to Nokia in the Q4. Only possibility is a €227M anomolous income on pg24, which would mean €4.80 per iPhone royalty, not including tablets, but that might relate to Vertu as well.
NSN is a cash machine. But sorry folks, Nokia needs NSN too much to sell or list it. At least until Q3. But I would rather they keep it anyway.
Devices admittedly still in trouble. The division is at a Q4 loss without selling Vertu and leasing the HQ. But this is leaps and bounds better than the -8% operating loss projected before the pre-report last week! Nokia is closing the gap. Is 6M Lumias and 15M Asha possible for Q1? That's what it will take...
HERE will acheive profitability when Smart Devices roughly doubles from here, as the YoY growth was only possible because of the automobile segment.
I'll get back to you on a Q1 price target. I'm tired. I think another +0.06 eps is possible and I think Nokia adds cash in the Q1. Nokia has exhibited a turnaround and will be rewarded at some point.
Here's my notes. Not propaganda, just anything I found noteworthy, backing up the above. Call them my talking points for the next 3 months :)
--Notes (in order of occurance on the Q4 report)
From reviewing the summary:
Selling HQ and Vertu were realized and Devices would have posted negative operating margin without.
Location (appearing as HERE on all future reports) still losing money with €278M in sales and a -€52M loss.
NSN looks great- Even though they got slammed with a -$255M restructuring charge, still added €650M cash at a net profit €251M with YoY and QoQ growth.
Nokia made more money leasing their HQ than they did on the Vertu divestment. Thank God he found a buyer (with lots of remorse). That would be too funny, it's possible they only received a deposit, or installment payment for Vertu though.
From reviewing guidance:
Devices profitability is guided in-line with the Q4 report at -2%, +/-4%, similar to last week's pre-report. Guidance from a seasonally strong Q4 into a seasonally weak Q1.
HERE will have another bad quarter, but not guided to be worse or better than Q4.
NSN guided to report more in-line with the Q3 2012 than the Q4 2012.
From reviewing cash:
MSFT payments are now finished.
Nokia still sees a -$3.27B impairment if they had to dump HERE right now. It will continue to be a problem until it becomes profitable.
QoQ margin growth.
Patents bringing in about €500M annualy.
Devices spent €1.1B cash in 2012. Guided to be only €300M for full year 2013, €150B in the Q1.
Restructuring to be €200M cheaper than previous guidance, new 2013 total €1.6B.
HERE did what it did mostly on the continued growth in the automobile platform. Can become profitable if Smart Devices volume doubles from current levels.
NSN growth in Asia-Pacific was most concentrated in Japan, and has peaked.
NSN total estimated -€1.3B restructuring charges through end of 2013 have been recognized in 2012. It's done.
Oracle developed an interface for HERE. This is not like the automobile sales. Oracle is providing unique content to the end user on the HERE platform.
NSN developed a toolkit for mobile broadband operators to identify and resolve wireless network degradation before it becomes a real problem.
Devices delivered higher operating profit dollars YoY on -€2B revenues.
pg24 - Devices - Other (where royalties are recorded) has a +€227M other income designation.
Less than 100,000 employees now.
Devices - Other, even with a +€227M in the Q4, net lost -€64M in 2012.
YoY inventories decreased 33.6% to €1.5B.
Total assets €30B.
Nokia debt increased €220M to €4.4B, but NSN debt decreased by 30% to €1.1B
€227M is about $300 million which is about what the disposed portion of Vertu sold for.
But that's not proof of anything. It does seem odd that there was an unscheduled early IPR payment two quarters ago and now the Apple IPR payment seems to be missing.
Didn't rmbo47 say something about a change to the manufacturing of Apple devices meaning the end of the payments?
A comment on the tone and content of the quarter report, and how Elop handles it -
A suggestion - there is something to be said for Nokia/Elop not giving bombastic forward guidance, and in fact to spin/low-ball progress to date. Right now Apple and Android are pounding each other, with much less attention/concern with W8/Nokia. There are a limited number of hours in a day, and the squeaky wheel get the grease. Why would Nokia/Elop, and MS/Balmer, draw attention to themselves until they are really ready to go toe-to-toe with Apple/Android?
I think the Windows 8 ecosystem is just getting started. I think MS is working on attributes/features that will significantly enhance the attractiveness/utility of that ecosystem. Consider - xBox in every living room, and Skype, and home automation, and location/car services, all integrated on an easy to use operating system. (I can't believe people say it's hard to use - I could teach a monkey to use W8 - it's colored tiles with pictures! You point and move. You can't get any easier!). I also believe Nokia is working on devices that will fully integrate that ecosystem - all your stuff, available immediately, wherever you are.
As much as we would like to see a full-blown W8 ecosystem fully deployed all at once, it is a huge and complex undertaking, and deployment will occur in stages. To quote Churchill, "This is not the end. This is not the beginning of the end. It is, perhaps, the end of the beginning".
I think Elop (and Balmer) are going out of their way to keep things low key. The end of the beginning for Nokia will be product announcements at the MWC in 30 days, and for MS with the release of a new xBox, placing the Windows 8 at the center of the home, with Nokia making the mobile hardware surrounding and feeding into the home ecosystem (that will tie to the workplace as well).
I am disappointed (impatient) with the pace of deployment of the W8 ecosystem. Two years ago I expected MS and NOK to be much further along. But, while it's going slower than I had hoped, it is still going in the right direction, and I remain reasonably confident (enough to put a fair amount of $ into it) we'll get there.
Thermonuke, can you double check your 2013 1.6B restructing cost for Device division. Here is the confusing part, in June 2012 annoucement, Nokia said 600M for 2013 total (now it said it is 200M less than original 1.9/1.8 B orignal total restructing cost - since 2011). In Concall, the restructing cost is 1.6B by EOY 2013, does this mean total 1.6B cost since 2012, or 2013 alone (which doesn't make sense). I checked the June 2012 original restructure plan. Could you please very this point?
Nice to put into the report.
In my view, the Lumia series looks good. But we still needs to see that it will become successful or more successful before the turnaround is to acknowledged for sure.
NSN: Making good money. Much better than before but competitive industry.
Devices and Services: Still need to prove themselves, but you can have hopes here.
Location and Communication: Still small, but development can be expected, but slow.
Within Devices and Services there are the 'NOKIA Patents'/Royalties which could have a huge value just getting more and more valuable a more patents are enforced (not just payments from Apple, RIMM, but the Chinese device suppliers), more smartphones are put into the world and when moving to 4G LTE where Nokia is king of patents.
What all this is worth ? Well now the stock trades at a value of 16 billion $....
Not really making any money overall, but could in the future if the phones start to sell well....and the patents in itself could be worth from 6 to 30 billion $ maybe more depending how you count.
Your layout of all the info is accurate. Nice work.
Nokia's main problem going forward is that NSN is coming down to Earth after a blowout quarter. Without that blowout quarter Q4 would have been a disaster. Not sure where the money will come from in Q1 if Devices turns in -2% margins. Maps will lose money and the MSFT payments reverse so more money will come out than will come in from that.
Not sure how you draw a 06 EPS from that grim assesment.
Yes but NSN also will not have a -255M euro restructure charge either. They will have net profit around $200M euro, HERE with a $50M loss, and IPR with $100M gain, so $250M is $0.07/sh eps. Devices can break even as per the guidance.
Hi Thermo, Needham & Co.’s Charlie Wolf this afternoon raised his rating on shares of Nokia (NOK) to Buy from Hold, with a $7.30 price target. Where does that fit in your analysis of device operating margin? do you agree with the upgrade given that it's mostly attributed to devices growth (Lumia) and not so much NSN growth?
Sentiment: Strong Buy
Great report, thanks.
One thing that stands out is that they seem to have accelerated slimming NSN down relative to the rest of the group.
They're definitely planning to either sell it or spin it off I think.
Also, why do you say the Softy payments of $250 Million per quarter are done? I thought they were getting $250 Million per quarter as long as they were exclusive to windows.
I also agree that they should wait a couple quarters to dump NSN as its generating massive cashflows for them right now which is helping their balance sheet enormously.
Today's sell off is way overdone and its probably mostly shorts taking advantage of news that the dividend got dumped. The only real sellers were funds that depend in a rich dividend. Those are now all out - good riddance.
I personally thought the stock would rally on news that Nokia will now have $1 Billion cash this year to spend on other things like a stock buy back or really pushing the Lumia line.
Finally - if Softy really stopped making payments to Nokia I think it's time for Nokia to double down and offer their sweet phones with android. That news alone would add $2 to our pps in a week.
That said, my stock options lost half their value today. PAIN!!!
I wish I had some spare cash to double down on at least the farther out calls (leaps) cause I do think we'll have another couple days down and then the uogrades will start as its as clear as Day to me that Nokia is now in ZERO risk of BK and has turned the corner.
We had a great quarter with no 620, no China, No India and most of all with a serious parts shortage. Yet they guided flat for Q1 given that's their weakest quarter. Knowing how conservative they are I'd expect Q1 to be a blowout.
One thing I gotta say is this: I now know Elop is a mindless buffoon. Who prerelease earnings and leaves Absolutely, no surprise, no added value for earnings day. The guy is just playing pretend CEO, he has ZERO leadershiip qualities.
Thank God Nokia has so much going for it cause otherwise this #$%$ (Elop) would drive it in the ground.
Average down - load up if you can cause 2013 should be a massive year for Nokia. As of today the stock is still priced for BK with over 20 analysts rating it a sell or strong sell. That's a lot of upgrades coming in the next 3 months. In my mind, $10 is a sure thing this year if they just execute to an even average degree given they're now offering such competitive phones to so many people on the planet. And I think China Mobile and China Unicom - 1 Billion consumers getting the 920 for free will be huge surprise for Q1 and then there's the 620 for countries like India as well as China. So much potential here and no money for me to add some more option calls.
Good luck to those who can keep adding!
Sentiment: Strong Buy
Vlad I owe you an apology, I went back reading through reports and simply can not find anything that says the payments would be exactly 4 quarters of $250M. I could only find reference that total platform support payments were expected to be around $1B. Perhaps the agreement is fluid in some way, as 4 quarters of $250M have already happened. With the 20-F guidance it appears there are more platform support payments to come.
Thought I'd bump this review in efforts to appease the board from my offenses this morning!
More to the point, I am not so good at determining Book Value, and would love if someone could offer their insights.
I still see +$0.06 for the Q1. But if Mr. Elop takes the full $200M writedown in devices then maybe not...