Goldman rates NOK a Buy, down from Conviction Buy

blogs.barrons.com/te...owing/

lt cap,

Thanks for posting the Barrons/NOK article. Even though it painted a pretty grim picture for the next several years.  I wondered what the dividend was, and it's skewed because it's a payout 1 time a year. Divdend.com says the dividend yield is 5.86 - although that doesn't sound right to me, but maybe it is, given how far the stock has crashed in so short a time.

So, there's the dilemma as to what to do as a holder. I suppose one could use the argument to sell, as it won't really be fruitful until 5g is in force, maybe as long as 3-4 yrs. out, and come back later to buy in. But at these prices, it's hard to push the button to cash out, at least to some degree, given that it may bbe (or not) overdone. One analyst said that he thinks the ERIC news may be company specific. Perhaps so. But also, my guess may be as good as his. 

When I see the expectations set pretty low compared to last year, I'd think with the lowered bar, they'd get more price support, unless they really crash thru those expectations. 

So, in the end, what is there to do? It's hard to let go a portion of this right now. I wish they'd pay dividends quarterly, so one would know how their dividend yield (if they continue to pay out at all) is fairing. But it's a long time till approx. May of 2017 to find that out. And any comment on it is very likely to be negative news, as companies seem to announce dividend cuts/eliminations when they're in financial trouble and need $ to shore things up.

I guess as with INFN, at this point I'll sit tight and hope they can push out some good news in the interim before 5g starts to become a reality, and then a mainstream one. I feel like Rip Van Winkle - go to sleep and wake me in 5 years. Although it could be he wakes up, it is now post-WWIII, and 'telecom' has been reduced to beating drums once again. Or smoke signals :-)

The dividend this year included a special one time dividend + the regular dividend, that it why it shows as a higher yield.  The regular dividend is E 0.16, or around $0.17.   At today's price the regular dividend yields around 3.45%

According to Yahoo Finance, Nokia has some $8B in cash (net of Debt), that is a ton of cash.  If that is accurate, it is difficult to imagine that Nokia will eliminate the dividend. 

Ericson's problems are both unique and sector driven.  Unique because it is essentially a one trick pony, its acquisition of Redback Networks has been widely seen as a failure.  However, the huge revenue declines in the wireless sector are obviously affecting all.  That said, Ericson is strong in Europe, Middle East and to a lesser extent in the US.  Europe and Middle East have grinded to a halt.  I believe that Ericson generates the vast majority of its revenues from wireless, so it is screwed.

Given the huge slow down in its main revenue generator, its employee roster is too heavy, analysts think the restryucturing plan will come up short unless they cut deeper. Forget where I read it, but it plans to cut some R&D, depending on how it is done, it could further hurt them.  They have to cut middle management, sales and only touch R&D where there are engineers working on roducts that are at their end of life.  And certainly, people in the customer service has to be preserved, only cut the non performers there.

Nokia is quite strong in the US, it is a player in China (distant second behind Huawei), but it is not an insignificant percentage, I think it is in the 20s., but don't hold me to it.  I do not believe Ericson has access to that market.

How bad is Nokia being hurt by the current environment?  It is tough to know, however, Nokia has made recent announcements of wins in China, even if they are not kicking in yet, they should over the next quarter or so.

Unfortunately, the degree of the slow down has caught everyone by surprise.  Analysts were clueless.  

Nokia has had a string of decent news in the past several months.  One which has been voided momentarily is the extended agreement with Samsung, that was substantial relative to the Technology division overall yearly revenue.  As noted, there have been contract wins in SDN, and Wireless with both China Telecom and China Mobile, as well as Switching and Routing.

All of which has consistently fallen on def ears.  I can understand, the wireless division is Nokia's larget revenue producer, and it is slowing down big time.

lt cap,

Thanks for the really good exposition of where things stand. I'm sure you know that Samsung said there will be no 3rd edition of the Note 7. And I don't know if they said, or it was said elsewhere, that perhaps the whole "Note" brand might be eliminated, as it stimulates bad memories. The question to me is - of course they don't have a successor to the Note 7 - that was supposed to be the iphone beater - so how/what/when they bring something to market seems impenetrable, except that it has to be gloomy. I think ZDnet had an article with a provocative title of whether the Samsung disaster will take android phones down completely. Perhaps anything to get a story read, I don't know.

In my dreams, I wish that Nokia's licensing to Samsung was a deal where they were already committed to paying a single sum for the license, and it was a multi-year deal - kind of a 'you bought it, you broke it, no refunds - so sorry." In reality, I'd think the licensing revs would certainly be based on a fee for each unit sold that uses the licensed tech. I'm bummed that NOK has lost approx. 20% of its share price within the last week. But I am glad that I have no Samsung position. Owie.

Jamok,

Yes, the Note 7 has been cancelled.  However, I believe that the overall hardware and software design will be carried forward with the exception of batteries and battery charging circuitry and some additional cost reductions wherever possible. Samsung is still the leader in Smart Phones globally with 22% marketshare, maybe I am being optimistic in thinking that in three months time they could have a substitute, naybe it is more time.  Regardless, Samsung will not cede its profitable position for too long, it cannot afford to, I would think they will act as fast as it can to produce a reliable phone.  And then I would expect them to aggressively price it to make up for the lost shine to its brand.

Nokia has also stated that the plan to realize the synergies will happen by end of 2018, one year ahead of original estimates, and will save $1.2B, $300 million higher than original estimates.  BofA estimates the synergies could rise as much as $1.6B, I think that is optimistic but it leaves Suri room to raise synergiesagain in some future quarter. And there are more news that I am probably forgetting.  

I was hoping that Ericson would stabilize, but this latest news puts a very dark cloud over the sector. Ericson is indeed in a heap of trouble, it has cash in the bank ($2.4B net of debt), but it is faced with having to consider making an acquisition while facing steep declines in profitability, heavy restructuring charges due to layoffs, etc.  Given the size of the restructuring, what any acquisition would cost (Juniper's market cap is nearly $9B, Arista is $5B), that is not a whole lot of money.  I too wonder:  Who would like to be acquired by a damage goods company??

Nokia as I posted before has a much larger cash cushion, it will come out well after this brutal period.  It too should have a definite advantage over Ericson, it is far ahead along the re-invent and turn around curve, Ericson is reacting to trouble and only after a lot of damage has already been done to its business, they were totally asleep at the wheel.

lt cap,

You're always catching pertinent info, often stuff that I'd miss the info or wouldn't know what it meant in context. With the NOK info and other company news, I think you ought to start a newsletter. Or ask Goldman Sachs to hire you as the analyst for the networking sector :-) But when I get tangled in a bad slide for NOK, it's really valuable to me to get a context as to what the underlying actions mean. I'm also reactive because a penny's move in the stock affects me in an outsized way. I imagine the stock movement in those cases affect you even more, as I'd think your investment in it is larger than the~22k shares I'm holding.  But I think you've said you started accumulating shares a lower, pretty good price. Unless it makes you uncomfortable, it would be a great favor to me if you let me know when you accumuate or dump shares going forward. I've obviously over-weighted myself in the sector, with lesser but substantial positions in INFN and CIEN. Far, far underwater but I'm taking the patient approach. Perhaps I should take a beating and sell as the turn around time for stocks like INFN looks like it will be a pretty long trip. The fact that it hasn't risen far above 9 since the last CC suggests that the market thinks the value of it really is this low. At least for now. It reminds me about how long they languished in single digits and your ability to wait for rabbits to be pulled out of their hat. Seem the differrence now is that the market knows which rabbits need to reappear as indicators that the damage is being address. Thanks for all you do.

Best,

Jamok

Jamok,

I have been adding very modestly to my NOK position under 6, now I plan to wait until after the earnings to add more.  As you know I have a large position, so I am now just adding modestly.  I view the short term as negative, but remain firmly convinced that the "very" long term will be very profitable, i.e. by late 2019.  The reason I stand firmly commited for the long term is because only the short term story looks troublesome, but the long term thesis remains quite intact, IMO.  

I will post when I buy more.