Wall Street View of Nokia and Sony Ericsson

Nokia

In his research note to yours truly, RBC Capital Markets Managing Director - Mark Sue states:

"It's the worst global handset demand environment since we can remember and it seems consumers are just not buying new phones. Despite some inventory clearing at carriers and distributors, magnified deterioration in developed markets and a sharp decline in emerging markets means global handsets may contract more than dire predications. For 1Q09, we're decreasing our global unit assumptions from 248M to 230M or -25% QoQ; our full year estimate reflects a contraction of -18% YoY.

"Nokia may feel the brunt of the weakness this quarter since it will lose some share as well and our unit estimates decline from 93M to 85M units (vs. 113M in 4Q08). The sharp decline in volumes means a severe impact to our mobile devices operating margin assumptions, which we now forecast at just ~5% from peak levels of ~20%. RBC's 1Q09 revenues decline from EUR10.0B to EUR9.1B, EPS declines from EUR0.14 to EUR0.07."

Sue continued, "Low end, mid range, and smart phones may all remain challenged as consumers reduce spending and push out planned upgrades. We're seeing weakness in North & Latin America, Europe and Asia. Most challenged regions are Russia, Eastern Europe and Africa. Currency benefits may also enable Samsung (~17% share) and LG (~8% share) to gain market share at Nokia's expense.

"Nokia, similar to most tech companies, may have been caught off guard by the rapid pace of demand contraction. If demand does not return during the 2H09 or early 2010, Nokia may have to further rationalize its cost structure and curtail its services investments. Separately, it's no better in other parts of the business, and incrementally we believe Networks may be below plan (prior target of EUR3.4B) while Navteq is also challenged (prior estimate of EUR180M)."

Sue concluded, "Over the last decade, Nokia has consistently generated cash averaging over EUR4B p.a."

Sony Ericsson

In his research note to yours truly, RBC Capital Markets Managing Director - Mark Sue reports:

"We're reducing our estimates on Sony Ericsson for the current 1Q09 as consumers reduce spending and hold off on upgrades. A lack of major product refresh and currency headwind, despite a loyal brand following for Cybershot and Walkman series devices, means Sony Ericsson is a net share loser near term. Sony Ericsson held 7.9% share in the recent quarter. For 1Q09, our unit expectations decline from 19.4M units to 18.5M units (-24% QoQ).

"Sony Ericsson is likely to operate in a loss for the first half of this year considering the weak demand and the lack of major product refresh. Promotional activity for Sony Ericsson products may also be very active during this period of reduced demand impacting ASPs. For overall Ericsson, considering the JV structure, our 1Q09 EPS declines from SEK1.01 to SEK0.97 while our CY09 decreases from SEK5.30 to SEK5.10."

Sue continued, "Cost discipline means Sony Ericsson will try to hold opex near 20% this year as it continues to invest in new devices. During MWC, Sony Ericsson introduced the Idou, a new high-end camera phone with a 12.1MP camera, touch screen, and Symbian interface. It is expected to be released 2H09. Meanwhile, the W995 features a 2.6" screen, WiFi, GPS, an 8GB memory card, an 8MP camera."

Concluding, Sue added: "Sony Ericsson continues to be focused on feature (music, camera) phones, and has yet to offer a serious contender in the smart phone segment. Having said that, derivative products based on the Xperia are expected later this year."

Sincerely,

BradReese.Com Cisco Refurbished
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