After the profit warning, only uncertainty remains in Nokia
The annual tradition continued this year with Nokia releasing another profit warning. Nokia has issued an amazing 14 profit warnings in the past 10 years, but yet again investors were surprised with a nice slap in the face. Nokia issued a profit warning a week ago highlighting competitive pressures and low margins on phones, largely due to competition in mobile phones in growing economies (exc. Smartphones), which is Nokia’s bread and butter.
We can see from Chart 1 that analysts’ estimates are simply all over the place, with varying profit margins and a large deviation especially in EPS. This simply highlights the risk in the company, as visibility of earnings is very low which increases the risk of owning the stock. This is most likely why, unless Nokia surprises massively at either end, the stock will probably not move much from its present level.
Consensus EPS estimates: -0.07
Consensus Revenue estimates: € 7.533bn
The perhaps silver lining to the cloud is that Windows Phones did relatively well with 2 Million Lumias sold in Q1, although the company expected this figure to be closer to 3 million. What is more problematic for the company in the short term is that Nokia will not have a complete lineup for Windows Phones until late 2012. This will most likely keep the price of the stock down for the most part of 2012, the especially worrying part is that while Nokia is slowly gearing up in the smartphone space under the Windows banner, it might bleed market share from growing economies switching from mobile to low end smartphones which Nokia is unprepared for. So while Q1 will be bad, so will Q2, with CEO Elop saying that investors should expect the same margins. But if the trend continues Q2 will turn out to be even worse than expected, so prepare for the worst in the next quarter. The big test for Nokia, is the Lumia Easter launch with AT&T in the US which should be very important to investors, as both companies have devoted significant resources to helping Nokia succeed in the US smartphone market.
It’s all about the Windows Phone for Nokia now…