We are upgrading our recommendation on Nokia Corp. (NOK) to Outperform based on the company’s fourth quarter of 2012 financial results, which significantly outpaced the Zacks Consensus Estimates.
Why the Upgrade
Nokia’s flagship Lumia series of smartphones received reasonable market traction in the lucrative North American region. Further, its mid-range Asha series of full touchscreen phones also performed well in the emerging Asia-Pacific region.
During the quarter, the company also improved its margins and cash position. A strong balance sheet with nearly $6 billion of net cash and a powerful patent portfolio will sustain the company’s long-term R&D activities. Moreover, Nokia Siemens Networks joint venture has shown signs of a turnaround. Nokia currently has a Zacks Rank #2 (Buy).
The Nokia-Microsoft (MSFT) combination may become a formidable challenger to Apple’s iOS and Google’s Android. Nokia is utilizing its expertise on hardware design and language support to innovate the Windows Phone 7 platform in areas like imaging.
Microsoft will pay $1 billion to Nokia over a period of 5 years for the promotional expenses of Windows-based smartphones. This will not only mitigate the marketing expenses of Nokia but also have a positive impact on the company’s financials in the years to come.
Nokia has decided to lay off nearly 10,000 employees by the end of 2013.The cost-cutting measures will result into $1.26 billion of restructuring charges. However, the company will be able to save approximately $3 billion per annum in its core Devices & Services segment.
In addition, Nokia-Siemens Networks has decided to reduce its headcount by 17,000, which is expected to result in an annual cost reduction of approximately $1.35 billion by 2013. Divestitures of non-lucrative segments, such as microwave transport and fixed-line broadband access businesses helped the company to concentrate on its core business of wireless and fiber-based networks.
Those rating agencies are always last and always late. Don't expect the bond upgrades to be the next catalyst. I'd be surprised if they upgrade Nokia by the end of this year when Nokia's stock is over $10. But don't worry, Nokia has so many catalysts coming in the coming weeks and months that $5, I believe, will be a small chore.
Think you are on point with that prediction. There is no reason to still have the lower credit ratings after this quarter and in light of future. When will it happen? It is derelict of these rating agencies not to change their ratings in a expedited manner, considering the implications of the same.