We downgrade our recommendation on
) to Neutral ahead of its first quarter of 2013 financial
results. The stock price has nearly doubled in the last year. In
our view, Nokia is currently fairly valued.
Why the Downgrade?
) iPhone hit the market, Nokia has been facing distressing times.
The situation further aggravated once
) launched its Android software and several handset manufacturers
adopted that operating system.
Furthermore, Android-based smartphones are flourishing in the
emerging markets of 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 and ZTE. Together, these may result
in lower average selling price (ASP) and less-than-expected
Meanwhile, the stock price of Nokia has soared 116% in the
last year, which may restrict above market gain anytime soon.
Risk/Reward Almost Balanced
Nevertheless, the flagship Lumia smartphone series of Nokia
has received reasonable market traction in the lucrative North
American region. Lumia runs on
) Windows Phone operating system. Further, its mid-ranged Asha
series of full-touch phones also performed well in the emerging
We believe that "NOKIA" is still a strong brand name that can
perform well if management introduces appropriate products
suitable for the next generation. The company has effectively
streamlined its cost structure, and consequently Nokia's margins
and cash position improved in the last reported quarter.
In the meantime, Nokia suffered severe blows from several
major credit rating agencies. Standard & Poor's Rating
Services (S&P), Moody's Investor's Services and Fitch
Ratings, all have downgraded the company's credit ratings and
have currently assigned junk category to Nokia.
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NOKIA CP-ADR A (NOK): Free Stock Analysis
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