Bernstein Research’s Pierre Ferragu this morning reiterates an Underperform rating on shares of Nokia (NOK), while cutting his price target to $1.56, after slashing his estimates for the year, writing that pressure on its sales “could accelerate with an increasing sub $100 competition.” Ferragu estimates that the company’s “Lumia” phones, developed with Microsoft (MSFT), sold 1.1 million to 1.4 million units in Q1, out of a total of 2.2 million shipped, at an average price of €220. That was below his expectations on price, and he opines that “the series won’t exceed 3 million by much in the fourth quarter” of this year.
Windows Phone 7 has insignificant traction and Windows Phone 8 is likely a 2013 story only, with a risk that consumers waiting for the new system weigh on Lumia shipments towards the end of the year. We maintain our view that there is no room left for the third ecosystem and any material success of Windows 8 will attract increased competition from HTC and Samsung, limiting upside for Nokia. Ferragu slashed his estimate for this year’s net loss to 38 cents from a prior 31 cents per share, and cut next year’s estimate to 9 cents from 4 cents.
Ferragu, moreover, emphasizes the risk of cash burn, modeling a net loss of €1.7 billion this year, negative free cash flow of €2.5 billion, and a decline to €3.1 billion in net cash, followed by a decline to €2.4 billion next year. We model Nokia spending €2.8bn in restructuring, of which ~€1bn for NSN. With high cash burn from operations, the company is likely to reduce its net cash position to minimal levels. Nokia shares today are down 3 cents, or 1.6%, at $1.85.
