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From: Bill Wolf5/31/2012 8:47:41 AM
1 Recommendation  Read Replies (1) of 117530
 
A Number of Hang-Ups for Nokia
MKM Partners values the handset business at zero.

Nokia (NOK: NYSE)
By MKM Partners ($2.95, May 30, 2012)

We are downgrading Nokia to Sell from Neutral following our U.S. retail Lumia model checks.

Our new price target of $2 [down from $4] is based on our estimate of the value of the company's intellectual property, which we peg at slightly more than $7 billion.

We assume no value for the handset business and no value for the roughly four billion euros [about $5 billion] in net cash, which Nokia (ticker: NOK) could potentially burn through in the next two years.

Our recent AT&T (T) and T-Mobile [of Germany] store checks suggest Lumia was a "hot phone" at each carrier for four to five weeks after launch, but has cooled and fallen out of favor as newer [Google (GOOG)] Androids, Samsung [of Korea] Galaxy models and the HTC [of Taiwan] One have taken over shelf space and channel/consumer mind share.
[B-HOT-NOK-0531]

Our research suggests the same thing happened in developed European markets, and that Nokia's volumes continue to decline in most emerging markets. We do not find that there has been a significant positive inflection in global [ Microsoft ] Windows Phone demand, and we are skeptical that Windows 8 handsets and tablets, to be launched later in 2012, will make much of a difference.

Nokia had €4.7 billion of net cash on the balance sheet at the end of first-quarter 2012, and paid a 2011 dividend of €740 million earlier this month.

Over the next two years, we expect Nokia to use up to €2 billion in cash for restructuring and at least €1 billion for operations. We think Microsoft may provide additional liquidity in the future, but we do not think it is likely to acquire Nokia outright.

We are lowering our 2012 earnings-per-share to a loss of 22 European cents from a loss of 17 European cents and 2013 to a loss of one European cent from 11 European cents.

-- Michael Genovese
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