We maintain our long-term Neutral recommendation on Nokia Corp. (NOK). Nokia is currently is in a state of mess. Recently, management declared that the company will not be able to reach any where near to its previous financial guidance for the second-quarter 2011.
Consequently, the full-year 2011 outlook is expected to remain as a distant dream. The company abandoned its profit outlook for fiscal 2011 and declined to issue a fresh full-year 2011 financial guidance.
The primary reason for the lackluster revised financial outlook by Nokia is the company’s poor performance in Europe and the emerging markets of China and India. Europe is witnessing gradual invasion of Google Inc. (GOOG) developed Android-based smartphones resulting in cut-throat pricing strategy by rivals. China is witnessing CDMA thrust, while Nokia offers GSM handsets.
Furthermore, Andriod-based smartphones are flourishing in both China and India. Price elasticity of demand is very high in these markets due to low per capita income and the existence of several low-cost Asian phone manufacturers like Samsung, LG Electronics, HTC to name a few. Together, these will result in lower average selling price (ASP) and less than expected handset sell.
We believe the legacy Symbian operating system is completely out dated now, facing rejection from all the corners of global markets. At present, Nokia’s future is contingent upon its success of the upcoming Windows Phone 7 software-based smartphones. Windows Phone 7 operating system is developed by Microsoft Corp. (MSFT).
We remain skeptical about these products as the success of any smartphone depends on several factors, including operating system, hardware, easy application development interface, and carrier subsidy, to name a few.
Meanwhile, the stock price has plummeted 43% in last year. This low-level of valuation may provide a cushion for further downslide.
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