Weakness in Nokia

The last week or two have seen Nokia (NOK) share prices weaken. This is notable in the face of a generally positive market. Let¶s find out why, and what we should do about it! You can go here to see links to initial analysis and supplemental updates on NOK. Why has Nokia stock been dropping, the Background The trouble started a week ago when Elcoteq (ELQAV.HZ) issued a profit warning based on ³reduced customer demand´. Elcoteq makes 20% of the handsets Nokia outsources. A reduction here implies lower orders in Europe for Nokia or a shift in handset construction strategy. This week CSR corp (CSR.LN) issued a similar warning: customer component orders are down so it will miss profit forecasts. Thirty five to forty percent of CSR¶s sales are into Nokia. Then today a handset cover maker called Perlor issued a profit warning as well ± and of course their biggest customer is Nokia as well. So reading these press releases seems to make it clear that Nokia is ordering fewer parts and phones produced than had been previously projected. The Analysis One thing to keep in mind is that NOK recently changed leadership. New CEOs do like to set strategy. All these companies are European, for one thing, which could indicate a local weakness or change in strategy. Most of Nokia¶s growth potential is outside of Europe. More importantly: these companies are still projecting growth, they are just throttling back their growth rate expectations. This implies that Nokia is perhaps just moderating their production rates in the mature European market.

83 +0. For the long term investors out there this is plenty to justify a good value and the dividend yield is high enough that you get well paid to wait.04 +0. Nokia Corp.S. head of Microsoft¶s business software unit. Invest well. but I may insure it with options or otherwise try to profit based on volatility that is likely to come up during the next 3 months. which until Canadian Elop had never hired a nonFinnish executive for the top spot. The world¶s largest mobile phone maker said Chief Executive Officer Olli-Pekka Kallasvuo will step down and Elop. I¶m going to remove NOK from the BUY list at right and list it as a long term holding on the Archived Buy list. Nokia should still see sufficient growth from Asia and perhaps the Americas to drive 7% sales growth. 21. (NOK: 10. Nokia may lower growth projections and the market will further punish current holders.12 +1. I¶m not going to exit Nokia investing because I can afford to wait years to collect. For the short term. But the company needs a strategy and management overhaul to compete in the profitable future of smartphones.12%) on Friday announced it was replacing its chief executive with Microsoft Corp.57 +0. there will probably be buying opportunities coming up. The move represents a drastic shift for Nokia. . however. but the company still seems pretty solid. will take the reins Sept. don¶t be surprised if Nokia sees significant weakness. I wouldn't blame you if you sell it.¶s (MSFT: 24. smartphone market. If Europe just holds at present sales levels.16%) Stephen Elop.What moves to make now A present value analysis of Nokia tells us that even a moderate growth rate from Nokia still represents a good price. and present expectations are for fairly high growth driven primarily by Asia. in an effort to reverse its steep decline in the U.

Some see Elop¶s experience with U.87 -0. and its U. ³They need to get to the lead of the pack again.¶s (GOOG: 536. .S. ³Having an ex-Microsoft person running Nokia suggests lots of interesting possibilities for the future. ³He¶s worked at the biggest software firm in the world. (JEF: 22.´ Elop said he will focus on the ³user experience.44 +3. Analysts are speculating that Elop¶s Microsoft connections could signal future collaboration between Nokia and Microsoft. smartphones.´ Royal Bank of Scotland Group PLC (RBS: 15. (IT: 30.S.68%) iPhone. ³They may not have the right products yet.S.85 +1. and upgraded Nokia stock to buy from hold. While Nokia remains the overall handset leader with 38% of the market. told MarketWatch. market share now is less than 10%.35 +6. Now there¶s a thought. which is trying to go from being a Finnish box maker to being a player in the U. corporate culture in the highly competitive field of technology as a huge bonus going into the Nokia role. This is very important for Nokia. which also is struggling to transition from the PC world to mobile phone software. research director in the mobile device division of research firm Gartner Inc. ³This is the best thing Nokia could do for investors who had grown tired of hearing it knew how to fix its problems. ³Nokia plus Microsoft allying to fight Google and Apple. and phones using Google Inc.´ said Simpson.36 +1.´ Elop¶s top priorities include developing a Nokia competitor for the iPhone and restructuring a corporate culture that weighs down innovative products with long approval processes and a lack of leadership.´ since one of the biggest complaints against Nokia is that its smartphones do not have user-friendly designs for connecting to the mobile Internet.The move should appease Nokia¶s frustrated investors who have watched its market value slip 70% in the past three years as Apple Inc.34 +1.02 +0. an analyst with Jefferies Group Inc.¶s (RIMM: 49.´ Nick Jones.57 +0. Research in Motion Ltd.¶s (AAPL: 294.56%).17 +0.S.01%) BlackBerry.51%) told MarketWatch.´ Lee Simpson.´ Nokia¶s share price has tumbled more than 22% so far this year.13%) analysts called the leadership change the catalyst they had been waiting for. ³The guy comes with the right passport and he¶s got the right experience.07 +4.´ Carolina Milanesi.18 +0. told The New York Times.-centric software and Internet-services business. but at least now they¶ve gone and done something at the management level. ³That Finnish mindset of caution has to be overturned. an analyst with Gartner.35 -1. it has not been able to compete successfully with higher end U.20%) Android platform stole the smartphone spotlight.

It¶s unsure whether Elop will attend Nokia¶s annual product trade fair. AT&T Inc. Together the carriers operate more than 90% of the U. (T: 28. a consumer-friendly handset is also key to winning markets.99 -1.´ ³The house is burning and things are going to be even more difficult in the short term.S. Nokia shares rose 1. who referred to Elop¶s career trajectory as ³patchy.06 -1.10 +0.83 -0. Engineers don¶t have a great track record of designing attractive handsets.84% Friday to $9. the joint venture of Verizon Communications Inc.30%) and Vodafone Group (VOD: 25. the N8. it is not reassuring. Well. And some analysts think his industry experience is not enough for the drastic strategy overhaul that Nokia needs to be a global smartphone competitor going forward.´ said Gartner¶s Milanesi.´ Pierre Ferragu. (VZ: 32.22 -0. ³Nokia World. ³We¶re really of two minds about him.´ told The Wall Street Journal.04 +0. Prior to that he was president of Adobe Systems Inc.S. when the company is slated to unveil its new smartphone model. Another area of concern is Elop¶s lack of experience in hardware design. Bernstein & Co. but on paper.´ said Neil Mawston.S.¶s (ADBE: 26. (S: 4.47 +0.32%).48 -0. which is good. experience like it¶s a big asset.15%).32%).But not everyone is sold on the idea that Elop¶s experience is strong enough to boost Nokia where it needs to be to compete with its rivals. stuck between a very powerful chairman and a long-standing management team with a strong cultural bias. He said Elop could ³have a hard time playing a strong leadership role. an analyst at Strategy Analytics. not really when you get someone with no connection to the carriers. ³He [Elop] might be a superstar. (JNPR: 31.´ Another key problem with Nokia that Elop¶s appointment fails to address is that it never established relationships with U.´ in London next week. but he also comes from a company that¶s had the same issues as Nokia in terms of adapting to a new world.´ said Ferragu. ³[I]t remains to be seen how well he will do on hardware devices. ³He comes from a software background. an analyst with Sanford C. smartphone market. While Nokia wants to focus on developing software.93%) global sales organization and CEO of Macromedia Inc.´ said Gartner¶s Milanesi. and Verizon Wireless.88 +0. Ferragu also voiced concern over changing the CEO when the bulk of the Finnish-minded company culture was still in place.70 -5. operators Sprint Nextel Corp. ³Everyone¶s talking about his U. Elop joined Microsoft in 2008 after leaving his chief operating officer position with Juniper Networks Inc.94 .03 -0.10 -0.11%).

com/press/press-releases/exploit-ict-reduce-global-warming-nokiasiemens-networks-cop15 We also provide comprehensive digital map information from NAVTEQ. Nokia's participation demonstrates our support for the belief that the benefits of strong.Nokia aims to be a leading company in environmental performance. driving best practices in our industry and influencing other industries to make full use of the potential of ICT and mobility in reducing emission. According to their research. drivers using navigation on a regular basis not only drive shorter distances and spend less time driving. The way we address the global challenge of climate change through energy efficiency in our products and operations is an integral part of our overall environmental strategy. Nokia Siemens Networks Energy Solutions are designed to reduce network operating costs and lower the power consumption of telecoms networks by exploiting more efficient technology and renewable energy.com/portfolio/services/energysolutions http://www. To participate raising public awareness Nokia signed an international communiqué. Although Nokia is not an energy intensive company and most of the CO2 emissions take place either in component manufacturing by our suppliers or in the use phase of our products. we want to show leadership. Nokia's climate strategy includes specfic targets covering areas that contribute to our direct and indirect CO2 emissions.nokiasiemensnetworks.com/press/press-releases/nokia-siemens-networks-pursues-applicationspartnerships-energy-sector http://www. We provide a statement of verification for some key targets. along with over 150 other global organizations. Nokia Siemens Networks offers the industry¶s most comprehensive approach to efficient and sustainable telecoms growth for Communications Service Providers of new and legacy telecommunications networks.com/press/press-releases/renewable-energy-and-efficiency-targetedlower-telecoms-costs http://www. but also consume less fuel which decreases their CO2 emissions. It urged world leaders to develop policies and measures for the business sector to contribute to building a low carbon economy to help tackle climate change. We do this by reducing our own CO2 footprint. NAVTEQ Navigation Benefits Study.nokiasiemensnetworks. See what Nokia CEO says about ICT industry's role in tackling climate change. ahead of the December 2007 United Nations Climate Change Conference in Bali. Since January 2008. Here are couple of examples of the achievements so far: y y y y y http://www. Indonesia. early action on climate change outweigh the costs of doing nothing. The four main areas are: y y y y Nokia products and services Nokia operations Nokia facilities Leveraging mobile and virtual tools in the way of working and management practices. Nokia Siemens Network is part of Nokia Group. raising consumer awareness on measures they can take to reduce their own footprint. a programme where WWF and businesses collaborate to address climate change. Nokia has been a member of WWF's Climate Savers.nokiasiemensnetworks. Being a member of this programme reinforces our commitment to energy saving in our operations.com/insight/environment/renewable-energy http://www. ways of working and products. .nokiasiemensnetworks.nokiasiemensnetworks.

or incorporating the functionalities of several products into one product. and operations more efficient.There is good evidence that information and communications technology (ICT) makes a major contribution to GDP growth but at the same time can help to reduce the use of energy. transportation. The environmental gains of dematerialization can also be significant. Convergence. ICT-based services and working methods such as remote work and videoconferencing can result in lower overall CO2 emissions. thus slowing down global warming. can further contribute to dematerialization and energy efficiency . Technology enables higher energy efficiency by making homes. offices.