Color on AmTech's Nokia (NOK) Downgrade
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American Research Technology downgrades Nokia (NYSE: NOK) from Buy to Neutral.
The firm believes that Nokia could face a huge challenge in overcoming 3G smart phone competition. In the second half of '08 and beginning of '09, AmTech sees the release of several new 3G smart phones as a negative development for Nokia. The firm recommends Research In Motion (Nasdaq: RIMM), Apple (Nasdaq: AAPL) or Qualcomm (Nasdaq: QCOM) as smart phone plays.
Although AmTech believes Nokia is currently valued attractively, in addition to low investor sentiment about the stock, it said it would "not recommend new money until we get a competitive response from Nokia." The firm specifically mentions several competitors as a potential meaningful threat to Nokia's market position: "About 7% of NOK's unit volume or 31 mil in 2007 was at the $300 or higher price point, representing ~15-20% of handset sales and 20-25% of gross profit dollars. The threat is now meaningful with RIMM 2008 units expected at 25mil, AAPL's iPhone at 11mil, and LGIC and HTC both in the 3-5mil unit range for 2008."
AmTech believes the entry of 3G phones could mark the beginning of a "down margin cycle". The firm estimates that "every 100bps in handset operating margin corresponds to ~$0.10 EPS for the full year." AmTech believes worst-case trough margins could reach 15-16%.
The firm lowered its FY08 EPS estimate on Nokia from $2.50 to $2.36, versus the Street consensus of $2.54. AmTech also introduced a FY09 EPS estimate of $2.44, versus the consensus of $2.88. The firm said these earnings estimates assume margins of 20.1% for FY08 and 18.5% for FY09, versus the Street's 20.6% and 20% for FY08 and FY09, respectively.
Nokia Corporation designs, manufactures, and sells a range of mobile devices and networks with services and software worldwide.
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